In my previous article here, I wrote about Hongkong Land Holdings Limited (SGX: H78) can help investors double their investment in the next five years.
For those who are not familiar with the company, Hongkong Land is mainly involved in the property development, investment and management business. Its property businesses are spread across China, Southeast Asia and in its home base of Hong Kong.
In this article, I will continue with the second part of my thesis, focusing on factors that might contribute towards the increase in the company’s share price.
Growth in book value per share
There are multiple metrics that can be used to assess the growth of a company. In the case of Hongkong Land, a good proxy of growth will be the growth in book value per share over time. The reason to use this as a proxy is due to the nature of the company’s business, which is centered on the property industry.
So how did the company perform in growing this metric historically? Here’s the numbers:
From 2009 to 2018, per share book value has grown from US$5.67 to US$15.98. This translates to a 12.2% compound annual growth rate (CAGR). With a growth in book value, the share price tends to appreciate as well. If the company can continue to grow at such a rate, a dollar of investment has the potential to turn into $1.78 in five years (78% total return). Even at half of the growth rate at 6.1%, it will deliver a total return of 34% in the next five years.
Another way for Hongkong Land to deliver investment returns is through valuation expansion. In this case, we are talking about the price-to-book (PB) ratio, a metric most relevant to Hongkong Land.
In the last decade, Hongkong Land’s shares were trading at PB multiples of roughly between 0.4 to 1.0 times. Presently, it has a PB ratio of 0.44 times.
The idea here is simple. If the valuation doubles from here — 0.44 times to 0.88 times, Hongkong Land’s share price will also double, assuming there is no change in the per share book value.
In sum, we can see that investing in Hongkong Land’s shares presents a good opportunity for investors to double their capital in the next five years.
Nevertheless, much of what has been written in this two-part series assumes that Hongkong Land can repeat its historical business performance. Thus, investors should carry out their own research in order to make up their mind about the future prospects of Hongkong Land.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool has a buy recommendation for Hongkong Land Holdings.
Motley Fool Singapore 2019