A Complete Analysis of Hongkong Land Holdings Ltd
Founded in 1889, Hongkong Land Holdings Ltd is a real estate conglomerate that has strategic assets located in major cities across the Asia Pacific. In 2008, its stock price halved as it coincides with the global financial crisis. Soon after, in 2009, Hongkong Land’s stock price had a prompt recovery and had gradually risen over the past 9 years.
Source: Google Finance
If you invested US$ 10,000 into Hongkong Land’s shares in 2009 at US$ 4.95 a share, today as at 29 June 2018, you would have:
- Grown your capital to US$ 14,444.
- Received US$ 2,909 in dividends over an 8-year period.
- Enjoyed a Total Returns of 7.64% per annum.
Is having a steady 7.64% return on investment attractive to you? Well, I think, the answer lies in your risk tolerance and expected rewards for making one investment. For instance, if you:
- Expect higher & faster returns from your investment and really have no qualm of losing the bulk of your capital if it turns sour, then I believe, you would opt for stocks that are into fast-growing industries or into sectors that are filled with exciting ‘Promises’. Your returns are based on whether these ‘Promises’ are fulfilled or broken in the future.
- Place stability of income & resilience as major priorities for investing in stocks, then most likely, you may want to assess whether a stock is one that has a solid business model, resilient, and is capable of profits in both good and bad economic situations.
In this article, I’ll highlight 8 things that you need to know about Hongkong Land before you invest.
#1: Stock Symbol
Ticker Symbol: SGX: H78
Market Capitalization: US$ 16.8 billion (22 June 2018)
Share Price: US$ 7.15 (29 June 2018)
Industry: Real Estate
#2: Steady Income Growth from Hong Kong Properties
Hongkong Land owns and manages 12 prime commercial buildings that are situated in the Central District of Hong Kong. These buildings are currently almost 100%-occupied with main tenants comprising mainly banks, legal, accounting, and other financial institutions. They had contributed recurring and steady growth in income to Hongkong Land in line with growing rental rates for office spaces in the vicinity due to steady demand and limitation in supply for them in Hong Kong.
Overall, Hongkong Land’s portfolio of properties in Hong Kong had:
- Achieved CAGR of 5.0% in Gross Revenue, up from US$ 646 million in 2008 to US$ 998 million in 2017.
- Achieved a CAGR of 9.9% in its Property Valuation, up from US$ 13.1 billion in 2008 to US$ 30.6 billion in 2017.
Source: Annual Reports of Hongkong Land
#3: Expanding Portfolio to China & Southeast Asia
Hongkong Land has completed the construction of its investment properties:
- 84% interest in WF Central, Beijing
It is a lifestyle, luxury retail and hotel project that was soft-launched in November 2017. The hotel component is set for launch in the mid of 2018. Presently, WF Central’s retail component is enjoying a 77% occupancy rate with 110 tenants.
- 50% interest in World Trade Centre 5, Jakarta
The development has been completed at the start of 2018. It is now handing over spaces to its tenants. Its occupancy rate stands at 92% presently.
Hongkong Land is developing several commercial properties where they are intended to be kept for long-term investment purposes. They include:
- 30% interest in a Grade-A office building project in Beijing where its size measures 120,000 sq. m. The project is still under planning.
- Mixed Retail & Office development project in Shanghai. This project is carried out under a joint venture with Lujiazui Group. Presently, it is in the planning stage and subjected to final regulatory approvals.
- Hongkong Land has a developable area of 440,000 sq. m. on one site in Bangkok CBD. In October 2017, it has achieved an agreement with Central Group to jointly develop the site where Hongkong Land has a 49% interest on this site.
#4: China, a Key Contributor to Development Revenues
In addition to investment properties, Hongkong Land is actively involved in the development of residential properties, particularly in mainland China. It has derived the bulk of its development sales from projects in Chongqing, Chengdu, Shanghai, and Beijing. Overall, Hongkong Land had increased its recognition of revenues from its property development activities in China by multiple of 10 times in 7 years, up from US$ 142 million in 2010 to S$ 1.35 billion in 2017.
Source: Results Presentation of Hongkong Land
#5: Ample Pipeline of Development Projects across Asia-Pacific
In 2017, Hongkong Land has unrecognized sales of US$ 996 million where it would mostly be recognized over the next 12 months, thus, providing income visibility over the short-term.
Meanwhile, over the mid-term, Hongkong Land has added 9 new projects in 2017 and 2 new projects in 2018 thus far. These projects would contribute to Hongkong Land progressively to as far as year 2024. They include:
|No.||List of Projects||Stake||Completion|
|3||Wuhan Dream Land, Wuhan||50%||2022|
|5||Yue City, Nanjing||33%||2021|
|8||The ESSE Sukhumvit 36, Bangkok||49%||2020|
|10||29B NDC, Vietnam||70%||2021|
|11||Thu Thiem River Park, Vietnam||64%||2024|
Source: Result Presentation 2017 of HongKong Land
#6: Steady Growth in Underlying Profits & Dividend Payouts
Hongkong Land has achieved steady growth in underlying profits, from US$ 565.5 million in 2008 to US$ 969.7 million in 2017. It is attributed by the real estate conglomerate’s steady growth in both rental and development revenue over the last 10 years. As such, it had enabled Hongkong Land to increase its dividend payments to its shareholders during the period.
Source: Annual Reports of Hongkong Land
#7: Healthy Balance Sheet
As at 31 December 2017, Hongkong Land had reported a net debt amounting to US$ 2.55 billion. Its net gearing ratio remained low at 7%, average interest cost of 3.6%, and average tenor of debt of 5.9 years. Hongkong Land has been granted an ‘A’ and ‘A3’ credit ratings by S&P and Moody’s respectively.
#8: Stock Valuation
As I write, Hongkong Land is trading at US$ 7.15 a share.
In 2017, it had reported underlying earnings per share (EPS) of US$ 0.41. So, its current P/E Ratio is 17.35. It is marginally above than its 10-Year Average of 16.58 presently.
In 2017, it had reported to have net assets a share of US$ 15.63. So, its current P/B Ratio is 0.457. It is below its 10-Year Average of 0.565 presently.
In 2017, it had paid out dividends per share (DPS) US$ 0.20. Hence, its gross dividend yield is 2.80% if Hongkong Land is able to maintain its DPS at US$ 0.20 a share in 2018.
Calculated based on Figures Presented in Annual Reports of Hongkong Land
So, will it continue to deliver sustainable returns to its shareholders? For me, time will tell. But for now, it is sufficient to say that Hongkong Land has laid a strong foundation where it continues to generate recurring income from its investment properties in main cities such as Hong Kong and Singapore. Also, it is active in property developments across the Asia Pacific, particularly in China where Chongqing remains as its key market. Its pipeline of property projects would provide income visibility to Hongkong Land for the next 10 – 15 years, increasing the likelihood of Hongkong Land to continue its delivery of solid financial results to shareholders in the future.
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Dear Mr. Tai,
Thank you for sharing you analysis.
I wanted to add the FCF below – ( hope the like works).