Hongkong Land - Upsized Buybacks In Earnings Dip
- Hongkong Land (SGX:H78)’s underlying profit in 1H22 was up 8% y-o-y to US$425m (43% of FY22F); EPS was up 10% y-o-y to US$0.1867, thanks to its initial US$500m buyback programme. Interim dividend was flat y-o-y at US$0.06. However, management has guided that its FY22F underlying profit would be “significantly lower than the prior year”, primarily due to delayed completion of its development property (DP) projects in China.
- Hongkong Central office portfolio sees signs of stabilisation in vacancies at 5.4% at end-Jun 22, much lower than Central Grade A office average of 7.9% (source: JLL). Its negative rental reversion could continue in 2H22F, but the magnitude should narrow towards FY23F. On the other hand, its Singapore office space benefitted from positive rental reversion and declining vacancy of 3% (on a committed basis) at end-Jun 22.
- Hongkong Land’s development property (DP) sales in China were down 69% y-o-y to US$419m on the back of lockdown measures and weaker sentiment for residential sales. Unbooked attributable sales amounted to US$2.4bn at end-Jun 21; 39% of the balance will be recognised in 2H22F. Meanwhile, it slowed its land acquisitions 1H22 in view of uncertainties in the global economy, and has acquired only one parcel in China and another parcel in Singapore.
- As for its JV projects in China (50% of US$9.6bn BV of investments in JV & associates), management is unaware of any liquidity issues for its JV partners, saying that the majority of cashflow risk of a JV project is removed after the land premium is settled. In our view, based on Hongkong Land’s history of being selective in choosing its JV partners (e.g., Longfor, CM Shekou, CIFI), Hongkong Land’s risk in relation to JV projects should be quite small.
- We cut FY22-24F earnings per share (EPS) forecast for Hongkong Land by 1-10%, factoring in delayed development property sales booking and lower rental growth in Hongkong/China, partially offset by upsized share buyback programme. Our target price for Hongkong Land is unchanged at US$6.10, still based on a 40% discount to NAV.
- Reiterate ADD call on Hongkong Land. its share repurchase in an earnings dip provides downside cushion to share price.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
Raymond CHENG CFA CGS-CIMB Research | Will CHU CFA CGS-CIMB Research | Steven MAK CGS-CIMB Research | https://www.cgs-cimb.com 2022-07-29 2022-07-29
Previous report by CGS-CIMB:
2022-03-05 Hongkong Land - More Involvement In China Development Properties & Investment Properties
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