CGS-CIMB Research analysts Raymond Cheng, Will Chu and Steven Mak have maintained “hold” on Hongkong Land (HKL) H78 with a lower target price of US$4 ($5.31) from US$4.70 previously.
This is based on a wider 60% discount to NAV as its EPS recovery is taking longer than expected amidst a high interest rate environment.
In their July 25 report, the analysts note that HKL’s HK Central office portfolio had a vacancy of 6.3% as at end-March. They expect the company to be resilient enough to maintain a vacancy lower than the Central average through its FY2024, given its prime location and HKL’s commitment to ESG standards for its investment properties.
That said, the analysts expect the mild negative rental reversions for HKL’s Hong Kong office to continue through FY2024 due to falling market rent rates and upcoming new supplies in the Hong Kong Central District.
HKL expects sales completions of its China development properties to be higher in FY2023 than in FY2022 due to the absence of pandemic-related restrictions. However, profit booking would be skewed to the second half of FY2023.
The analysts believe lower gross profit margin for its China development properties sales recognition will be a new norm for HKL, comparable to China’s largest state-owned developers such as China Overseas Land and Investment and China Resources Land.
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As floating rate borrowing cost for Hong Kong dollar and US dollar now stands high at about 6%, CGS-CIMB believes HKL will continue to keep a slow race in share buyback, even though it still had US$0400 million budget unused for buyback as at end-June. “We also believe HKL will extend its buyback programme by one year to December 31, 2024 and maintain its buyback budget,” the analysts add.
CGS-CIMB has cut its FY2023-FY2025 EPS estimates by 5%-15%. This is to reflect lower average selling price assumptions for its China and Singapore development property sales; new Hong Kong dollar to Renminbi assumption of 0.93; delay in property sales booking schedule in FY2023-FY2025; and weaker-than-expected EPS growth due to slower share buyback. The analysts have also cut their NAV for HKL by 3% to US$10.1 accordingly.
As at 2.08pm, shares in HKL are trading 4 US cents lower or 1.1% down at US$3.59.
