Thursday 7 August 2014

Hong Kong Land

Kim Eng on 1 Aug 2014

  • 1H core profit -17% YoY to USD433m, mainly due to decline in residential completion. In 2H, two Singapore projects to be completed. 1H core earnings 48% of our 2014 forecast. Overall, 1H results in line.
  • Rental income rose 6.6% in 1H, slightly above our expectation. Vacancy in its HK office portfolio was in line, ending at 6% as of June and rental reversion was positive.
  • Maintain BUY, TP of USD8.16, 19% upside potential. We believe HK Land remains a good play on our ‘recentralization’ theme.
What’s New
Overall, HK Land’s results were in line, with trading properties less than expected but rental income slightly ahead. Rental income rose 6.6% to USD424m for 1H14, slightly above our expectation. The rental income represents 52% of our full-year forecast. Rental reversions were positive in 1H14 for  its Hong Kong office portfolio. Office vacancy ended up at 6.0% as of June ‘14 (slightly down vs. 6.2% as of April) and up vs. Dec ‘13’s 5.0% -- which was in line with our expectations. Its HK retail portfolio continued to be fully let.

Trading property revenue dropped by 74.5% YoY to USD115.8m due to a lack of Singapore development completion. No Singapore project was completed in 1H and there was USD34m of prior writedowns that were reversed. Subsidiary MCL targets to complete the Terrasse and Uber 388 projects in Singapore in 2H. HK Land’s 1H core profit fell by 17% YoY to USD433m, translating to 48% of our full-year forecast of USD897m. This is on the back of fewer residential properties delivered. There was no change in HK Land’s interim DPS of US 6 cents, flat YoY, which was in line  with our expectation of flat YoY DPS of US 18 cents for the full year. Net gearing was little changed at 12%. Book value rose 1% YoY to USD11.53/share. Maintain BUY with unchanged TP of USD8.16.

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