Yahoo Finance Hongkong Land’s Share Price is Scraping a Multi-Year Low: Can the Property Giant See a Rebound?
Investors in Hongkong Land (SGX: H78), or HKL, are going through a tough time.
Shares of the property developer have hit a multi-year low of S$3.06 recently and have declined by 26.9% in the past year.
The bearishness stems from troubles in Hong Kong and China amid a property downturn.
However, the blue-chip property group is holding its own with its portfolio of high-quality properties even as it grapples with weak sentiment.
Could investors see a rebound in its share price anytime soon?
Revenue and profits are under pressure
HKL released a resilient set of results for 2023 despite facing headwinds.
The group did, however, see year-on-year declines in its revenue and net profit.
For 2023, revenue fell by 17.8% year on year to US$1.8 billion as HKL saw lower sales of development properties in China along with reduced profit margins.
The property giant also booked a US$1.3 billion fair value loss on its investment properties, resulting in the group reporting a net loss of US$582.3 million for the year.
Stripping out this exceptional item, HKL’s core underlying profit would have dipped by just 5% year on year to US$734 million.
Income-seeking investors will be pleased that the group kept its 2023 dividend constant at US$0.22 per share, unchanged from 2022’s pay out.
Free cash flow generation also remained healthy at US$616.3 million but was nearly 20% lower than the US$763.7 million churned out a year ago.
Investment properties holding the fort
HKL has two main business segments – investment properties and development properties.
Its Investment Properties division contributed 78% of the group’s operating profit for 2023 and accounted for 82% of its gross assets for the period.
Therefore, this division forms the bulk of HKL’s profits and is a stable cash flow contributor that enjoys consistent rental income along with steady capital appreciation.
Profits from the Investment Properties division rose 3% year on year and helped to hold the fort for the group.
This was despite a 5% year-on-year decline in the valuations for its Investment Properties, led mainly by its Hong Kong portfolio.
For 2023, vacancy for its Hong Kong investment properties stood at 6.8% on a committed basis, up from 4.7% in 2022.
However, this level was still lower than the 9.9% logged for Hong Kong’s central Grade A office market.
HKL also saw slight negative rental reversion where the average office rent dipped from HK$111 in 2022 to HK$106 in 2023.
Singapore’s portfolio fared much better with committed vacancy levels at just 0.9% in 2023, down from 2.2% in 2022.
Positive rental reversion also saw the average rent increase from S$10.6 per square foot (psf) in 2022 to S$10.9 psf in 2023.
Weaker contributions from development properties
The development properties division saw a tepid 2023 because of challenging market conditions in mainland China.
Because fewer properties were sold in 2023 compared with 2022, HKL’s attributable interest in revenue recognised came in at US$1.62 billion, down from US$1.87 billion in 2022.
In addition, management also recognised an impairment of US$90 million on several smaller residential projects, including two in Wuhan, China.
Despite these setbacks, investors should note that HKL is developing luxury and premium lifestyle retail properties in China in addition to selling residential properties.
Currently, the group has four properties with an attributable net leasable area of 175,000 square metres (sqm).
A further 10 projects with net leasable area of 358,000 sqm will be launched from 2024 to 2028.
HKL’s development properties pipeline in China stood at 37 projects with a developable area of nearly 8.4 million sqm, of which construction is 74% completed.
Encouraging business development efforts
Aside from the above, HKL also reported encouraging business development efforts as it maintained its discipline in selecting strategic investment opportunities.
The group invested US$1.3 billion in new land and property acquisitions back in 2023.
Two new acquisitions were made in Chongqing and Beijing.
The Chongqing site has a developable area of around 301,000 sqm and will comprise residential units while HKL took up a 20% interest in the development of a mixed-use site in western Beijing with a total developable area of 194,000 sqm.
Back in Singapore, the group acquired two residential sites that will be developed in joint ventures with other developers.
HKL’s effective interest in these projects amounts to around 584,000 square feet of developable area.
Get Smart: A robust pipeline of projects
HKL may be facing tough times now, but its portfolio of high-quality investment properties should stand it in good stead to weather the downturn.
These investment properties generate a dependable stream of rental income that enables the group to report positive free cash flow and maintain its US$0.22 a year dividend.
Meanwhile, the property developer also has a steady pipeline of projects in both Singapore and China that it is working on in the next four years.
Investors need to have patience as China deals with the fallout from the property bust but HKL’s business looks sturdy enough to withstand any further shocks.
We’ve just released a new Special FREE Report: “How to Make Your Child a Millionaire.” It’s a simple, no-nonsense guide for parents who care for their child’s financial future. You’ll also find 3 stocks (one even had a 55.8% jump in dividends) you can consider today to kickstart your child’s “piggy bank.” Click HERE to download now.
Disclosure: Royston Yang does not own shares in any of the companies mentioned.
The post Hongkong Land’s Share Price is Scraping a Multi-Year Low: Can the Property Giant See a Rebound? appeared first on The Smart Investor.
