Morningstar | Interim Results Slight Beat, Improving Property Market Sentiment Bodes Well for the Company. See Updated Analyst Note from 01 Mar 2019
Sino Land’s interim result for fiscal-year 2019 came in slightly ahead of our estimate. Underlying attributable profit was HKD 2.4 billion, compared with HKD 3.3 billion a year ago, excluding gains related to disposal and revaluation. The interim earnings are slightly more than half of our full-year projection of HKD 4.6 billion. The company declared an interim dividend of HKD 0.14 per share, up 7% year on year. The balance sheet has plenty of capacity and is at a strong net cash position. Sino Land performed better than we expected on the back of a recovery retail environment, and, more importantly, improving sentiment in the Hong Kong property sector. We adjusted our model to account for faster contract sales in Hong Kong. We maintain the company’s no-moat rating and increase our fair value estimate from HKD 13 to HKD 14.Revenue from the property development business, including attributable associates, was HKD 2.1 billion, down 53% year on year. Gross profit was down 68%, as margin was lower. However, contract sales were strong during the period and beyond. Through January 2019, contract sales in Hong Kong totaled HKD 19 billion, mainly based on new launches of Grand Central and Mayfair by The Sea. For the rental business, gross rental income, including attributable share from associates, totaled HKD 2.1 billion, and net rental income totaled HKD 1.8 billion, both up 6%, a reasonable performance on the back of the retail recovery in the city.
During the period, pace of land acquisitions slowed with the firm only adding a small site of 12,000 square feet. Compared with the previous fiscal year, the company acquired seven sites totaling more than HKD 20 billion, adding 1.2 million square feet of residential development projects. As a result, the balance sheet remained in a net cash position, with debt of HKD 4.2 billion offset by cash of HKD 26.6 billion. We expect the company to maintain a high payout ratio to allow for continued gradual growth in dividend.
As Hong Kong development properties remain the key earnings driver, the improving sentiment in the property sector should bode well for the company. Further, there is significant scope for capital recycling or special dividends, given the company’s portfolio of investment properties available for disposal and its strong balance sheet.
Sino Land is an investment holding company. Co.'s segments include: property sales, property rental, property management and other services, hotel operations, investments in securities, and financing.
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