Hongkong Land - DBS Research 2024-03-08: Strong Embedded Value; Rental Income Exhibit Resilience

• Hongkong Land (SGX:H78)’s FY23 underlying profit fell 5% to US$734m, broadly in line with our forecast, due to lower development income from China caused by delayed project completions and lower margins.
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Dividend remained stable.

• Despite lower underlying earnings, final dividend remained stable at US$0.16. This brought the full-year dividend to US$0.22, per share, unchanged from FY22. See Hongkong Land's dividend dates.

Resilient rental income.

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• Vacancy of Hongkong Land's Central office portfolio inched up to 7.4% in Dec-23 from Jun-23’s 6.9% and Dec-22’s 4.9% as post-pandemic recovery of leasing demand was slower-than-expected, as a result of the subdued capital market.
• Committed vacancy was 6.8%. (Jun-23: 6.2% & Dec-22: 4.7%). Yet, this compared favourably with the overall vacancy of 9.9% in Central which reflected the continued “flight to quality” trend resulting in a polarised market.
• Office reversionary growth remained in negative territory, resulting in average office rents falling 4.5% to HK$106psf in 2023 from HK$111psf in 2022.
• About 31% of leases are scheduled for expiry or rent review in 2024. With expiring rents of HK$108psf, office rental reversion is expected to become less negative in 2024.

Retail tenants’ sales surged remarkably.

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Jeff YAU CFA DBS Group Research | Percy Leung DBS Research | Cherie Wong DBS Research | https://www.dbs.com/insightsdirect/ 2024-03-08 SGinvestors.io

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