SINGAPORE (April 4): CIMB Research continues to rate property investment, management and development group Hongkong Land at “add” with a raised target price of US$8.50 ($11.90) from US$7.80 previously.
In a Tuesday report, analysts Lung Siu Fung and Raymond Cheng highlight the counter is currently trading at a 41% discount to CIMB’s net asset value (NAV) of US$13, which is the deepest versus its peers Swire Properties and Champion REIT at 37% and 34% respectively.
Firstly, the analysts suggest that land value for Excelsior Hotel, which is owned by Hongkong Land’s sister company Mandarin Oriental, could hit HK$40,000 ($7189.21) per sq ft on the notion that office buildings in the central business district (CBD) could be undervalued by the market.
The analysts also believe that group’s Murray Road commercial site, which is appraised by the market at HK$25,000-$40,000 per sq ft, may offer a positive surprise as the its tender results are unveiled after May 12 as its current valuations are believed to underestimate the “eagerness of mainland firms looking for headquarters in Hong Kong”.
(See also: Hongkong Land could be lifted by Central office assets)
“More importantly, demand for offices located in the CBD remains steady although businesses are choosing other locations given the widening rental gap between Central and other areas,” note Lung and Cheng.
“According to various office agents, vacancy in Central offices remains low and demand from mainland firms remains strong, with vacated space from relocated firms instantly taken up by mainland financial institutions… No major bank lease will expire this year, granting bargaining power to landlords.”
Additionally, the analysts are expecting Hongkong Land’s luxury retail portfolio to see a gradual recovery this year, given the narrowed price differential between Hong Kong and other regions, in addition to improving visitor arrivals.
Hongkong Land therefore remains CIMB’s top pick among the sector followed by Swire Property and Champion REIT, which have been rated “add” and “hold” at target prices of HK$26 and HK$4.5 respectively.
As at 11.21am, shares of Hongkong Land are trading 3 cents lower at US$7.69.
