While Hongkong Land’s operating trends are “in line” with Lee’s forecasts, its performance was weighed down by lower contributions from the Hong Kong office portfolio and pre-opening expenses related to new investment properties in mainland China.
Hongkong Land’s Hong Kong office portfolio showed early signs of stabilisation, says Lee, with committed vacancy improving to 6.4% as of the end of September, compared with 6.9% at the end of June. This was driven by stronger leasing demand amid a recovery in capital market activity.
Despite improved leasing momentum, Lee believes the city-wide grade A office vacancy rate of 13% will take time to normalise before rental growth resumes on the back of tighter space availability.
“The company noted continued deterioration in mainland China's residential sector, citing limited new policy stimulus,” notes Lee. “Hongkong Land plans to review the carrying value of its build-to-sell assets at year's end, and we think further non-cash provisions in the segment are possible.”
For now, Lee thinks Hongkong Land offers “decent shareholder returns”. “As of Nov 20, USD$110 million remains available under its ongoing share buyback program, which we expect will support share price performance.”
While Hongkong Land has guided for a y-o-y decline in FY2025 underlying net profit (excluding provisions), it remains committed to a mid-single-digit dividend growth.
Lee’s FY2025 dividend forecast of 24 US cents per share implies a yield of 3.8%.
Last week, DBS Group Research kept their “buy” call on Hongkong Land, with a slightly higher target price of US$7.70 from US$7.60. The target price of US$7.70 is a 31% discount to DBS’s December 2026 net asset value (NAV) estimate on Hongkong Land.
On Oct 31, Hongkong Land completed the sale of its Singapore and Malaysia residential developer MCL Land for $739 million. Net proceeds from the divestment amounted to $839 million, which includes cash distributions before completion.
The group has now secured 50% of its target of recycling at least US$4 billion of capital by end-2027.
Shares in Hongkong Land, which rallied between May and July, are up 46.5% year to date and up 4.5% over the past month.
