SINGAPORE (May 14): DBS Group Research says Hongkong Land’s rental income expansion from Central’s office market should benefit from sustained demand from Chinese firms, tight vacancy and limited new supply.
On April 9, Hongkong Land repurchased 12.3 million shares at US$7 ($9.33) each in the open market, marking its first share repurchase in more than 15 years.
“This signals the strong embedded value of the stock,” says lead analyst Jeff Yau in a May 10 report.
As at 2.20pm, Hongkong Land is trading at US$7.21 implying nearly 42% discount to NAV.
In March, vacancy rate of Hongkong Land’s Central office portfolio narrowed further to 0.9% from 1.4% in December. Against this backdrop, office rental reversion continued to be positive.
Yau says this would push up the average office rents which stood at HK$108 psf in 2017, driving rental income growth. Retail portfolio in Central remained effectively fully let but rental reversion turned mildly negative. This could partially offset the income growth from the office portfolio.
In March, Singapore’s office portfolio vacancy remained tight at 0.4%. Reversionary growth, though still negative, is expected to turn positive later this year given continued market recovery.
WF Central, Hongkong Land’s newly opened luxury retail complex in Beijing, performed in line with the company ’s expectations. In China, the company achieved attributable contracted sales of US$300 million ($400 million) in 1Q18, up 4.5% y -o-y.
In Singapore, the substantially sold Sol Acres project was completed in April. Lake Grande, due for completion in 2019, has become fully sold. Elsewhere, Margaret Ville is expected to be launched shortly.
Overall, residential sales are becoming increasingly crucial to the company ’s earnings. Due to the payment for previously committed land acquisitions, the company ’s net debt has risen modestly since the beginning of 2018.
“Maintain ‘buy’ with target price US$8.53,” says Yau.
