EUR 850.00 For Business Accounts Only

Morningstar | Hongkong Land Undervalued in Light of the Buoyant Hong Kong Office Market

Hongkong Land’s shares were up only 3% for the year to date, not fully reflecting the buoyant Hong Kong office market. While the performance of the company’s core Hong Kong portfolio is in line, investor sentiment may reflect the uncertainties stemming from the company’s recent expansion initiatives. Notably, the company acquired six new development projects in mainland China, including entry into three new cities. Previously, the company’s development portfolio in mainland China consisted of 13 projects in five cities. The residential market in China is expected to slow, and it may be challenging for the company to manage the expansion, given current market conditions. The company executed a one-off buyback in early April at USD 7.00 per share, the first buyback in more than a decade. As management had previously stated that it is unlikely to engage in capital management, the buyback reflected management’s view that the shares were strongly undervalued at that level. We believe the current market price represents an ideal entry point with limited downside risk. We maintain our fair value estimate of USD 7.90 per share, along with our narrow moat and stable moat trend ratings.

CBRE reported that the city’s office sector saw rental growth of 4.6% for the year to date, with vacancies falling to 5.1%. Rents in Central are forecast to set a new high by end of the year. Vacancies in Central remained at 2%, with mainland firms continuing to expand. In comparison, the company’s portfolio saw positive rental reversion, with the vacancy rate falling to 0.9% from 1.4% during the first quarter. Commercial assets in Hong Kong remain in demand, with transactions occurring at record low capitalization rates, likely to further boost the company’s portfolio valuation.