Analysts maintain calls on Hongkong Land but with reduced target prices

·3-min read

The company has a US$500 million share buyback programme in place

Hongkong Land's FY2022 earnings fell somewhat short of expectations but analysts have generally kept their existing calls on the stock, albeit with slightly trimmed target prices.

On March 2, the Hong Kong-based developer, best known for its portfolio of prime commercial assets on the island's Central, reported underlying FY2022 earnings that's down 20% to US$776 million.

Nonetheless, the company plans to maintain its final dividend payout of 16 US cents, bringing full year payout to 22 US cents.

The company, part of the Jardine conglomerate, attributes the lower earnings to lower earnings from development projects in China. In addition, its rental income is still under pressure, as Hong Kong was for a large part shut from international business.

"Even though management expects negative rental reversions in the teens in FY23F, it is confident of retaining key tenants to deliver a better performance than decentralised office," write CGS-CIMB analysts Raymond Cheung, Will Chu and Steven Mak in their March 4 report.

For its Singapore investment properties, the company expects positive rental reversion to continue through the current FY2023 into the coming FY2024, thanks to limited new supply, add the CGS-CIMB analysts, who have kept their "hold" call but with a lowered target price of US$4.40, from US$4.70 previously.

DBS Group Research's Jeff Yau and Percy Leung, separately, is optimistic that Hongkong Land's rental income will stay "resilient" as it benefits from so-called "flight to quality" trend, thanks to its portfolio of prime assets.

"With a proactive lease management strategy, the company is in a better position to navigate through the challenges of an office supply glut," write the DBS analysts in their March 3 note.

"The company is also developing large-scale investment properties in gateway cities in China to leverage on its expertise in Hong Kong," add Yau and Leung, who have kept their "buy" call but with a reduced target price of US$5.33, from US$5.93 previously.

The analysts' relatively positive view of this stock is supported by Hongkong Land's two consecutive share buyback programmes of US$500 million each.

The programme was renewed in July 2022 for use by end of the current FY2023.

They acknowledge that the pace of share buybacks have slowed recently but that's because of relatively lofty interest rates. Between Aug 2022 and Feb 2023, just some US$56 million has been spent. The timeframe may be extended by between six and 12 months, note the CGS-CIMB analysts.

"Share buyback should play a key role in dictating share price performance in the near term," say the DBS analysts, whose target price of US$5.33 is pegged to 55% discount of the stock's NAV estimate for end FY2023.

Hongkong Land shares changed hands at US$4.43 as at 2.55pm, down 1.56% thus far this day.



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