HONGKONG LAND HOLDINGS LIMITED (SGX:H78)
HongKong Land - More China Property Development Projects Ahead
- Weak property sales recognition dragged Hongkong Land’s underlying profit down 11% y-o-y in FY20.
- Management expects negative office rental reversion in 1H21F. It, however, believes the “work-from-home” trend will not impact demand for prime office.
- Hongkong Land will likely expand its property development land bank in China, as management claims it has enjoyed a short payback period and a more predictable profit margin there.
- Reiterate ADD on Hongkong Land with a higher target price of US$5.70 (45% discount to NAV).
11% y-o-y decline in Hongkong Land's underlying profit with flattish dividend in FY20
- Hongkong Land (SGX:H78)’s underlying profit in FY20 declined by 11% y-o-y to US$960m (9% above our estimate), on the back of weak development property delivery due to COVID-19.
- Hongkong Land's FY20 dividend was US$0.22 per share (flat for three consecutive years). See Hongkong Land's Dividend History.
Hongkong Office: flattish rent despite higher vacancy
- Its HK Central office portfolio delivered resilient performance with a flattish average rent of HK$120/sf/mth in 2020, while year-end vacancy rose to 6.3% from 2.9% a year ago.
- Management expects negative rental reversion in 1H21F but remains optimistic of the leasing demand due to the prime location of the office cluster, and believe the “work-from-home” trend will not negatively impact corporations’ demand for prime office space.
Hongkong Retail: we expect solid recovery in FY21F
- Impacted by rental concessions and negative rental reversion, its HK retail portfolio’s effective average rent declined to HK$164/sf/mth in FY20 (HK$212/sf/mth without taking rental concessions into account). Year-end occupancy held up well at 99.7% as Hongkong Land switched to a flexible short lease term strategy that kept its average lease expiry low at 1.9 years.
- With local shopping activities resuming, we expect local luxury retail sales to stage a solid recovery in FY21F which should benefit Hongkong Land’s retail rental income.
Prefers replenishing development property land bank in China than in Hongkong/Singapore
- Its China contracted bank in China than in HongKong or Singapore, as it claims it has enjoyed a shorter payback period and more predictable profit margins.
Reiterate ADD with a higher target price of US$5.70
- We raise Hongkong Land's FY21F/22F earnings per share forecast to US$10.4 to factor in the better recovery in the investment property business. Consequently, our target price for Hongkong Land is raised to US$5.70, still based on a 45% discount to NAV.
- Reiterate ADD call on Hongkong Land.
- See Hongkong Land Share Price; Hongkong Land Target Price; Hongkong Land Analyst Reports; Hongkong Land Dividend History; Hongkong Land Announcements; Hongkong Land Latest News.
- Key downside risks are a prolonged COVID-19 outbreak and more property market tightening policies in China, while higher rental reversion could be a potential re-rating catalyst.
Raymond CHENG CFA
CGS-CIMB Research
|
Will CHU CFA
CGS-CIMB Research
|
https://www.cgs-cimb.com
2021-03-15
SGX Stock
Analyst Report
5.70
UP
5.100
