Investment Thesis

Higher Earnings Visibility

BUY with HK$40.6 TP. The stock is trading at a 53% discount to our assessed current NAV, against its 10-year average of 45%. Continued improvement in earnings quality led by rental income expansion justify a higher stock valuation over the long term. Its application under the pilot land sharing scheme, if successful, could open up an alternative channel for Henderson Land to unlock the hidden value of its vast agricultural land reserve which could prompt a stock re-rating. 
Portfolio expansion in Hong Kong and China to boost rental income. Rental contribution from the newly built H Zentre in Tsim Sha Tsui, where occupancy has picked up to 70%, is growing. Targeted for completion in 2023, The Henderson in Central should produce annual income of >HK$650m when fully let. In 2H21, the expected completion of Lumina Shanghai and retail portion Lumina Guangzhou should add momentum to the company’s rental earnings recovery in China.  

Land sharing pilot scheme proposal to unlock the value of agricultural land. In Aug-21, Henderson Land submitted the land sharing pilot scheme proposal to convert agricultural land lots in Tai Po for public and private housing development. If successful, this opens a new alternative to unlock the value of its vast farmland reserve. 

Valuation: Our target price is based on a target discount of 50% to our Jun-2022 NAV estimate.

Where we differ: We are more positive on its medium-term rental income growth which is led by its portfolio expansion in Hong Kong and China. 

Key Risks to Our View:

Any deterioration in property demand could drag its earnings and share price performance. The prolonged subdued investment sentiment in the commercial market would make it difficult to unlock the value of the company’s non-core assets.