SINGAPORE (March 6): DBS Group Research is making a “buy” call on real-estate group Hongkong Land with a target price of US$7.90.
This comes despite Hongkong Land posting a 6% decline in underlying profit to US$848 million ($1.2 billion) for the full year ended Dec 2016.
This was “primarily due to lower-than-expected residential sales earnings,” says DBS Vickers (Hong Kong) lead analyst Jeff Yau in a report on Friday.
However, Yau believes demand for office leasing from Chinese enterprises in Hong Kong’s Central district will continue to be strong amid a tight supply of new offices ahead.
Vacancy of Hongkong Land’s Central office portfolio improved to 2.2% in December, from 3.1% in June. At the same time, average office rents grew 2% y-o-y.
“The favourable supply/demand dynamics should continue to lend strong support to Central office rents, which should outperform those in decentralised areas,” Yau says.
Meanwhile, Yau highlights that a multi-storey car park building site at Murray Road is expected to be offered for tender soon.
“This should attract tremendous interest from not only developers but also Mainland financial institutions,” Yau says. “The encouraging tender results expected could prompt the revaluation of office assets in Central, which should in turn be positive to Hongkong Land.”
Moreover, Yau notes that shares of Hongkong Land are trading at a discount to its net asset value (NAV) estimate. “The stock is trading at a 38% discount to our assessed current NAV,” says Yau.
As at 12.34pm, shares of Hongkong Land are trading 6 cents higher at US$6.90.
