HongKong Land - DBS Research 2020-02-21: Record-breaking Acquisition Of Prime Site In Shanghai


HongKong Land - Record-breaking Acquisition Of Prime Site In Shanghai

  • Hongkong Land secured a sizeable mixed-use site in Shanghai for Rmb31.05bn.
  • China business is an increasingly crucial earnings platform in the medium term.
  • BUY with US$6.52 Target Price.

What’s New

  • Hongkong Land (SGX:H78) has secured a mixed-use site in West Bund of Shanghai via government auction for Rmb31.05bn or US$4.4bn. The purchase price has broken the previous record for land acquisition in Shanghai of Rmb24.85bn set by China Minsheng Investment Group (CMIG) in Nov-14. This also marks the largest land acquisition that Hongkong Land has ever made in China. Based on accountable GFA of 1.08m sm, the land cost works out to be c.Rmb28,564 psm.
  • Located in Xuhui District alongside the Huangpu River South Extension area, the site enjoys unobstructed view of the Shanghai Expo Cultural Park. The site will house a Grade-A office, retail, hotel, and residential development. This mixed-use project will be constructed in multiple phases with targeted completion by 2027. Approximately c.24% of the land’s GFA may be offered for sale in accordance with the land grant. Upon project completion, this development should enhance the company’s recurring earnings. Including construction and financing costs, total development cost is estimated to reach as high as Rmb70bn or > Rmb64,000 psm.
  • The land premium will be paid by instalments in 2020. Following the completion of land premium payment, we estimate Hongkong Land’s gearing to rise 11ppts to 21-22%. Despite higher gearing, the company’s financial risk remains well managed. Hongkong Land plans to use internal resources and debt to finance the project with no intention of equity fund-raising.
  • In recent years, Hongkong Land has been stepping up its investment in China where the company has > 20 development projects. In Shanghai, the company has three projects with total attributable GFA of 254,000sm prior to this land acquisition. This makes the China business an increasingly crucial earnings platform in future.
  • Hongkong Land shares are trading at 56% discount to our current assessed NAV, against its 10-year average of 33%. Even allowing for the challenging office and retail sectors in Central that could overshadow the company’s core rental earnings, the current valuation is undemanding from an historical perspective.
  • We keep our BUY recommendation at this stage with Target Price of US$6.52.
  • See Hongkong Land Share Price; Hongkong Land Target Price; Hongkong Land Analyst Reports; Hongkong Land Dividend History; Hongkong Land Announcements; Hongkong Land Latest News.

Jeff YAU CFA DBS Group Research | Ian CHUI CFA DBS Research | Jason LAM DBS Research | https://www.dbsvickers.com/ 2020-02-21
SGX Stock Analyst Report BUY MAINTAIN BUY 6.52 DOWN 6.640