While analysts may have differing calls on Hongkong Land (HKL), they have similar sentiments on the group and expect a rather positive year ahead for the group.
To recap, HKL had recently released its FY2024 ended Dec 31, 2024 results, which saw losses widening quite significantly by 138% y-o-y to US$1.39 billion ($1.85 billion) from US$582 million a year ago.
Underlying profit attributable to shareholders for FY2024 came in at US$410 million, down 44% y-o-y from the US$734 million recorded in the same period a year ago.
The group attributed the decline to non-cash provisions from the Chinese mainland build-to-sell business. Excluding the Chinese mainland non-cash provisions, the group’s underlying profit is US$724 million for FY2024.
In October, the group announced that it will strategically focus on growth in its ultra-premium integrated commercial assets in cities across Asia.
To fund that growth, Hongkong Land has committed to recycle up to US$10 billion over the next 10 years, from three main sources — winding down existing inventory from the build-to-sell segment, divestment of non-core commercial assets, and recycling mature prime property assets into REITs and other third-party capital vehicles.
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Following the results release, CGS International has kept its “hold” call and lowered target price down to US$4.83 from US$4.95 previously.
Analysts Raymond Cheng, Will Chu and Steven Mak note that final DPS has improved by 6% y-o-y to 17 US cents, with FY2024 DPS rising 5% y-o-y to 23 US cents, representing a 70% payout ratio. This was the first DPS increase since FY2018.
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The analysts notes that the group’s FY2024 attributable gross rental income (GRI) declined 2% y-o-y to US$1.37 billion. GRI from HK office declined by 5% y-o-y due to negative rental reversion, yet its office vacancy of 7.1% remains well below Central Grade-A office’s average of 11.6% as at end-2024. Management expects negative rental reversion to continue in FY2025.
FY2024 GRI from HK retail was down 9% due to tenant movements for its “Tomorrow’s Central” initiative, although retail passing rents rose 3% y-o-y on positive rental reversion. Management admits challenging retail operations (tenant sales down 8% in FY2024, excluding effect of tenant movements, and down more than 10% in 2M2025).
FY2024 office rents in Singapore rose 2% y-o-y, with vacancy low at 1.0% as at end-2024; management expects stable performance on the back of limited new office supply in Singapore CBD.
HKL expects a partial recovery in underlying profit in FY2025 to below FY2023’s level. “As management intends to pay 60-80% of recurring income as dividends, we expect HKL to continue to grow its DPS by 1 US cent per annum. in FY2025 – FY2027. In our view, its underlying profit will still be dampened by lower HK office rents in the near term. However, we believe its investment property (IP) portfolio expansion in China, and other Asian countries, would lead to higher earnings stability in the long run, leading to higher EPS and DPS visibility,” say the analysts.
“We think its current valuation (14.6x FY25F P/E, 5.5% FY25F dividend yield) reflects investors’ positive expectation of its strategy update and an increase in shareholders’ returns,” they add.
On the other hand, DBS Group Research is reiterating its “buy” call but lowered target price to US$5.25 from US$5.34 previously.
Analysts Jeff Yau, Percy Leung and Cherie Wong are upbeat on the group’s new corporate strategy it unveiled in October 2024, which aims to simplify its business with a focus on IP in Asia’s gateway cities. It intends to expand IP AUM to US$100 billion by 2035.
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Leveraging on its strong brand, track record and expertise, HKL will focus on ultra-premium integrated commercial projects across key Asia’s gateway cities. In addition to capital generated from asset recycling, the company also leverages on third party capital to fund expansion, enabling it to earn recurring fee-based income stream.
To reduce profit fluctuations, the group will wind down its build-to-sell segment, mainly in China, which exhibits high earnings volatility. It also expects to double its underlying profit before interest and tax by 2035, with no single city contributing >40%.
“By doing so, HKL should see a stronger and more resilient recurring earnings base,” say the analysts.
HKL has already commenced rolling out its new strategy. strategy. Initial phases focus on capital recycling and establishment of deal sourcing and fund-raising capabilities. The company targets to recycle capital of up to US$10 billion over the next 10 years with an initial target of US$4 billion – US$6 billion by 2027. Up to 20% of the proceeds may be allocated for share buybacks.
Furthermore, HKL aims to deliver mid-single digit DPS growth annually, doubling by 2035. “These should enhance shareholders’ returns and support share price upside,” say the DBS analysts.
“The stock, trading at a 58% discount to our appraised current NAV, remains attractive taking into account better growth prospects led by the new strategic initiatives,” they add.
As at 3.50pm, shares in HKL are trading at US$4.37.
