Morningstar | HLD's future growth depends on its ability to unlock the value of its large Hong Kong land bank.
Henderson Land Development is a leading Hong Kong property developer. It ranks third in square footage in the retail sector, and fourth in the office sector. In residential sales, HLD is usually a top-five developer in terms of units sold and contracted sales. Despite its strong presence across all sectors of HK real estate, it has limited signature projects. HLD's colorful founder and chairman, Lee Shau Kee, is the lone surviving member of The Three Swordsmen, the famous trio that established Sun Hung Kai group of companies. Reflecting the founder’s long-term vision, HLD is conservatively managed. For development, HLD prefers land acquisitions through urban redevelopment and farmland conversion, allowing it a lower cost basis. Aside from HLD’s 40% stake in IFC (a premier commercial development in HK), its investment property portfolio comprises low-profile assets spread across sector, location, and grade, the result of an organic and opportunistic development-and-acquisition process over the years. HLD's approach has several implications. Many projects require long development time frames, which slows earning growth and lowers ROIC relative to more-aggressive peers. Second, its diversified investment properties have precluded HLD from developing signature projects or leveraging its brand name across its portfolio. HLD's China operation seems to mirror its Hong Kong approach. HLD's future growth will depend on its ability to unlock the value of its large land bank in HK by accelerating its asset turns. The government’s recent effort to boost Hong Kong's housing supply should speed up the farmland conversion process, and we expect HLD to be the leading beneficiary of this policy change. HLD's pipeline of urban redevelopment projects is moving apace. Owing to their in-town locations, these projects should draw adequate demand, even in a soft market. Given this, coupled with low acquisition costs, HLD can defend its development margin better than its peers. On the investment property side, HLD will need to consolidate its portfolio through disposal and repositioning. Even so, HLD's slow asset turns and subpar ROICs are likely to persist in the near term.Henderson Land Development is an investment holding company, engaged in property development and investment in Hong Kong and mainland China, hotel operation, project and property management, construction and provision of finance. Co.'s segments include Property development, property leasing, construction, infrastructure, hotel operation, department store operation, utility and energy, and others. Co.'s others segment is involved in the provision of finance, investment holding, project management, property management, agency services, cleaning and security guard services, as well as the trading of building materials and disposal of leasehold land.
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