Is HongKong Land Holdings Ltd The Best Property Company You Can Find?

Founded in 1889, HongKong Land Holdings Ltd (HKL) is a real estate corporation that derives recurring income from strategic assets located in prime locations in Hong Kong, Singapore and other major cities in Southeast Asia. In addition, HKL derives trading income from its interests in real estate development activities in mainly China. As of 9 April 2019, HKL’s market capitalisation is US$ 16.5 billion.

In this article, I’ll be covering on its latest financial results and would provide its valuation figures based on the current stock price of US$ 7.07 per share. Therefore, here are 8 key things to know about HKL before you invest.

  • Segment 1: Investment Properties
    HKL has achieved CAGR of 9.6% in its portfolio of investment properties from US$ 14.8 billion in 2009 to US$ 33.7 billion in 2018. It is attributed to continuous increment in property values of its Hong Kong properties and the inclusion of key properties such as:
1One Raffles Quay33.3%Singapore2010
2Marina Bay Financial Centre33.3%Singapore2012
3World Trade Centre 1 50%Indonesia2012
4World Trade Centre 250%Indonesia2012
5World Trade Centre 350%Indonesia2018
6World Trade Centre 550%Indonesia2012
7World Trade Centre 6 50%Indonesia2012
8Exchange Square100%Cambodia2016
9One Central49%Macao2009

Source: HKL’s Annual Reports

As a result, this division has achieved CAGR of 4.5% in revenue, up from US$ 759.8 million in 2009 to US$ 1.12 billion in 2018. It has contributed to a consistent increase in underlying operating profits, from US$ 638.2 million in 2009 to US$ 1.04 billion in 2018.

Source: HKL’s Annual Report

  • Segment 2: Development Properties
    In 2018, HKL had recorded US$ 1.54 billion in revenues for this division, the highest in 10 years. This is contributed by HKL’s efforts to expand its real estate development businesses in main cities across China, notably
    Chongqing city where it accounts for 10 out of 20 projects in China. HKL had accumulated US$ 1.36 billion in unrecognised sales from China and they would be recognised over the next 12 months.

    Meanwhile, HKL has 3 key projects in Singapore and has accumulated a total of US$ 0.42 billion in unrecognised sales. In 2018, this division has added another 12 projects where their estimated completion times are ranging from the year 2021 to the year 2028. Hence, these projects would raise HKL’s income visibility over the long-term.

They are as follows:

1Liangjiang, Chongqing50%China2021
2YueLai Project, Chongqing100%China2021
3CaoHeJing Project, Shanghai26.7%China2023
4YiXinHu Project, Chengdu33%China2021
5JL Central, Nanjing50%China2023
6Jiangbei, Nanjing50%China2021
7Tulip Garden50%Singapore2022
10Gatot Subroto50%Indonesia2023
12King Kaew49%Thailand2027

Source: HKL’s Annual Reports

  • Group Profitability
    Overall, HKL has achieved CAGR of 8.1% in group revenue, increasing to US$ 2.67 billion in 2018 from US$ 1.32 billion in 2009. This is attributed to sales growth recorded by both divisions during the 10-year period. It has contributed to CAGR of 3.3% in underlying earnings, where it raised from US$ 777.1 million in 2009 to S$ 1.04 billion in 2018.

Source: HKL’s Annual Reports

  • Cash Flow Management:
    From 2009 to 2018, HKL has generated US$ 5.6 billion in operating cash flows, US$ 428.4 million in interest income, and US$ 1.22 billion in total dividends from its associates and joint venture companies. Besides, the real estate company has raised US$ 1.68 billion in net long-term debt.

    Out of which, it has spent:

    – US$ 2.22 billion in net investments & advances to associates & JV co.
    – US$ 1.88 billion in renovation & development expenditures.
    – US$ 4.01 billion in dividends to its existing shareholders.

    As of 31 December 2018, it has US$ 1.37 billion in cash balance. Hence, it has proven itself to have excellent cash flow management and is able to continue to make dividend payments to reward its shareholders.

Source: HKL’s Annual Reports

  • Balance Sheet Strength
    As of 31 December 2018, HKL has non-current liabilities worth US$ 4.3 billion and shareholders’ equity amounting to US$ 38.3 billion. Thus, it has 11.33% gearing ratio. In addition, HKL has current assets of US$ 4.3 billion and current liabilities of US$ 2.3 billion. Thus, it has a current ratio of 1.89.

  • P/E Ratio
    As of 9 April 2019, HKL is trading at US$ 7.07 a share. In 2018, HKL has reported making US$ 0.442 in underlying earnings per share (EPS). So, its current P/E Ratio is 16.00, which is below its 10-Year P/E Average of 17.47.
  • P/B Ratio
    As of 31 December 2018, HKL has net assets of US$ 16.43 per share. As such, HKL’s current P/B Ratio is 0.43, which is below its 10-Year Average of 0.58.
  • Dividend Yields
    In 2018, HKL has paid out US$ 0.22 in dividends per share (DPS). It is an increase from US$ 0.16 in 2009. Therefore, HKL has built a track record of growing its DPS for the last 10 years.

Based on its current stock price of US$ 7.07, its dividend yield is 3.11% per annum, which is above its 10-Year Average of 2.86%.

VIA’s Verdict

Overall, HKL has continued to deliver sustainable growth in revenues, earnings, and dividends to its shareholders. Moving ahead, it has built itself a twin-model where it continues to derive recurring income from its investment properties & incremental income from its pipeline of development properties.

In terms of its valuation figures, HKL is trading at below-average P/E & P/B Ratio and above average dividend yields.

So, is this a good time to invest and gradually accumulate shares of HKL? Please do leave us your comments below:

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