Hongkong Land, a property investment management and development company, is another one of our 10 real estate stock picks, given its high intrinsic value compared to its share price. A subsidiary of Jardine Matheson, Hongkong Land’s Singapore-quoted shares, as at April 18, closed at US$4.42 ($5.90), a fraction of its net asset value (NAV) of US$14.95 as at Dec 31, 2022. Just before the pandemic, the stock was trading at more than US$7 before the unrests in Hong Kong reversed the stock into negative territory.
Founded in 1889, Hongkong Land owns and manages over 850,000 sq m (9.15 million sq ft) of prime office and luxury retail assets in Asian cities such as Hong Kong, Singapore, Beijing and Jakarta. Included in its portfolio are some 450,000 sqm of prime property in Hong Kong’s Central District which includes Jardine House, One & Two Exchange Square, Three Exchange Square, The Forum and Prince’s Building. Also within its portfolio are 165,000 sq m of prime office space in Singapore. Buildings within the city-state include Marina Bay Financial Centre and One Raffles Quay.
Besides collecting rent, the company is an active developer too. Its privately-held subsidiary, MCL Land, for example, is a well-established developer in Singapore with names like Copen Grand, Piccadilly Grand and Leedon Green under its portfolio. The company also has a presence in eight Chinese cities including Beijing, Shanghai, Chongqing, Chengdu and Wuhan.
The stock’s positive attributes are easy to identify. Its portfolio of prime commercial properties located in choice locations in key Asian gateway cities means it enjoys a steady stream of rental income and long-term capital appreciation. The company also makes sure its investment properties are rented out to corporate companies with the “appropriate credit history” such as JP Morgan, KPMG, PricewaterhouseCoopers, Hermes, LVMH and Kering.
In his earnings commentary for FY2022 ended December 2022, chairman Ben Keswick stuck to a cautious tone. The Hong Kong properties, for example, should enjoy some respite as the multi-year woes of political unrest followed by the pandemic is more or less over, although Keswick warns that rental reversions for its Hong Kong office portfolio for the current FY2023 will remain negative. Overall, Hongkong Land’s FY2023 will mainly depend on how quickly China’s property sector will recover, says Keswick.
Thanks to shifting regulatory stances, China’s property sector since the start of the year has shown some tepid signs of recovery or, at least, is not getting worse. According to China’s National Bureau of Statistics, the sector regIstered growth of 1.3% y-o-y during 1Q2023, making this its first expansion in seven quarters. Hongkong Land is poised to benefit from this trend, given how it has on hand a few prime development sites on the Mainland.
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In a previous era, the Jardine group of companies are not exactly the most accessible and friendly to investors. Yet, in a significant show of how times might have changed, Hongkong Land on September 2021 announced a US$500 million share buyback programme, to address the yawning gap of some 60% between its share price and book value. Another US$500 million has been allocated to be used by end of this year. The most recent buyback was on April 18 with just over 2.9 million shares were bought back at US$4.4 each.
In addition, throughout the past decade, despite the volatility in its earnings year by year, Hongkong Land has also held its annual dividend payout steady at between 17 US cents in FY2012 and 22 US cents for FY2022.
As at Dec 31, 2022, the company’s reported cash and cash equivalents were US$1.17 billion. Its net debt, on the other hand, stood at US$5.82 billion, which gives it a comfortable gearing of 17%, below the 20% benchmark.
Disclaimer: This company is for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This stock does not take into account the investor’s financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor’s own discretion and/ or after consulting licensed investment professionals, at their own risk.
