Hongkong Land - DBS Research 2018-05-10: Offices Shining

Hongkong Land - DBS Vickers 2018-05-10: Offices Shining HONGKONG LAND HOLDINGS LIMITED SGX: H78

Hongkong Land - Offices Shining

  • Central office vacancy fell below 1% on continued favourable rental reversion. 
  • Office reversionary growth in Singapore to turn positive later this year. 
  • Recent share buyback signals strong embedded value. 
  • Maintain BUY with US$8.53. 

 What ’s New 

  • The vacancy rate of Central office portfolio improved further to 0.9% in Mar-18 from Dec-17’s 1.4%. Against this backdrop, office rental reversion continued to be positive. This would push up the average office rents which stood at HK$108psf in 2017, driving rental income growth. Retail portfolio in Central remained effectively fully let but rental reversion turned mildly negative. This could partially offset the income growth from the office portfolio. 
  • In Singapore, office portfolio vacancy remained tight at 0.4% in Mar-18. Reversionary growth, though still negative, is expected to turn positive later this year given continued market recovery. WF Central, a newly opened luxury retail complex in Beijing, performed in line with the company’s expectations. 
  • In China, the company achieved attributable contracted sales of US$300m in 1Q18, up 4.5% y -o-y. In Singapore, the substantially sold Sol Acres project was completed in Apr-18. Lake Grande, due for completion in 2019, has become fully sold. Elsewhere, Margaret Ville is expected to be launched shortly. Overall, residential sales are becoming increasingly crucial to the company ’s earnings. 
  • Due to the payment for previously committed land acquisitions, the company’s net debt has risen modestly since the beginning of 2018. 
  • On 9 Apr, Hongkong Land repurchased 12.3m shares at US$7/share in the open market, marking its first share repurchase in more than 15 years. This signals the strong embedded value of the stock. The stock is now trading at 41% discount to our estimated current NAV
  • Given sustained demand from Chinese firms, tight vacancy and limited new supply, Central office market should remain in good shape. This augurs well for Hongkong Land’s rental income expansion. Any further share buyback could limit downside risk on HongKong Land's share price
  • Maintain BUY with US$8.53 Target Price. 

Jeff YAU CFA DBS Vickers | Ian CHUI DBS Vickers | Jason LAM DBS Vickers | https://www.dbsvickers.com/ 2018-05-10
SGX Stock Analyst Report BUY Maintain BUY 8.530 Same 8.530