SINGAPORE (Aug 4): CIMB is maintaining its “buy” on Hongkong Land with US$9.10 target price given the group holds the most valuable assets in Hongkong but is also trading at the cheapest valuation at 46% discount to NAV.

The research house says management could also consider strategic review separate listing or changing listing structure to REIT/trust, thus unlocking its value.

Since the Murray Road tender transacted at record-high land cost in mid-May, the capital value of Central office has been appreciating on cap rate compression.

An independent valuer has also revalued Hongkong Land’s book NAV up by 9% to US$14.54 ($19.74).

“While we believe Hongkong Land will not consider disposal of its valuable assets, we think it can unlock value via a separate listing or changing its listing structure e.g. REIT/trust as many of the SG REITs are trading at par or premium to NAV,” says lead analyst Lung Siu Fung in a Friday report.

Hongkong Land’s 1H17 results beat market expectation.

Core profit surged 32% y-o-y, beating CIMB’s expectation by 25%, mainly due to more property sales booked in Singapore. 1H17 DPS stayed flat at 6 US cents. Net gearing dipped from 6% at Dec 16 to 5% at June 17.

HK Central retail portfolio, accounting for 20% of Hongkong Land’s NAV and FY16 core profit, saw stronger-than-expected recovery in 1H17. Occupancy remained largely full. Average rent, including base rent and turnover rent, increased further from HK$220/sf/mth in 2H16 to HK$224/sf/mth in 1H17.

Hongkong Land will also complete a number of rental properties in 2017-2018.

In Beijing, WF Central will open in late-2017 and the associated Mandarin Oriental Hotel in 2018. In Jakarta, WTC 3 will be completed in early-2018. The Exchange Square at Cambodia was completed in 2016 and occupancy continued to ramp up in 1H17. In June 17, Hongkong Land also teamed up with IOI Properties to develop a commercial project at Marina Bay Financial District.

Revenue from property sales jumped 1.7x to US$784 million in 1H17, mainly due to LakeVille sales booked in Singapore, vs. no completions in 1H16. In China, contracted sales surged 62% y-o-y to US$701 million in 1H17, thanks to the strong sales momentum in the past 1.5 years. Unrecognised contracted sales increased from US$1.1 billion at Dec 16 to US$1.4 billion at Jun 17, providing higher earnings visibility for the coming 6-12 months.

Update: Shares in Hongkong Land closed 21 cents higher at $7.80 on Friday.