Will working from home becomes a new norm for the world. Its an unknown, but what do I think.
As reported by Reuters just two days ago, global banks in Hong Kong are starting to move their staff back to office. This is true for the US as well, as reported by CNN on the 21st of June 2021. What surprises me was the fact that big techs names are in the list of companies expecting their employees to return back to the office to work. It was an irony considering the tech companies benefited heavily from the “work-from-home” arrangement.
With the global vaccination gaining traction, i believe that there is a possibility that Covid-19 will become an endemic in the future. Even the government of Singapore who has always being very careful has indicated that they may want to open up Singapore as soon as possible in view of the damage that the covid is doing to our economy.
With the above in mind, I am looking at companies that will benefit from the “back-to-office” arrangement. Based on the current valuation of Hongkong land at a price-to-book value of just 0.3x, it seems that too much negativity has been factored into its price.
What is the quality of their assets?
We see that their Hong Kong Offices portfolio vacancy rates did decrease to 6.3% in 2020 from 2.9% in 2019. Their rental rates decreased as well from 2019 to 2020. This is due to the Covid-19 that swept across the globe in 2020 and no one is spared in the property space. But based on the centralised locations of its properties, I think that this trend may reverse once the “back-to-office” arrangement starts to gain traction. The recovery will definitely be bumpy but surely. I see that happening most probably the 2nd half of 2022.
HongKong Land office portfolio is expected to be resilient as well due to their high quality tenant base which consists of International banks and other financial institutions.
Their focus in Mainland China and Singapore for property development is strategic as property prices for this two regions have been stable even with the pandemic.
Valuation
Current PB stands at 0.3x at the price of $4.83.
Pre-covid PB stands at 0.35x.
Pre Hong Kong political protest around 0.4x.
Assuming we return to pre-covid level, target price based on 0.35x PB is $5.635 (16.67% upside)
Assuming political risk eliminated trading at a PB of 0.4x, target price is $6.44 (33.33% upside)
Do take note that the above TP is based on the historical PB of the company and assuming the scenarios indicated materialising. As of writing, Hongkong Land is trading at $4.83.