Takeaways from virtual property conference
? HLD expects home prices in HK to remain stable, despite higher mortgage
rates ahead, on strong local demand and short supply.
? Management said that farmland conversion should be faster after introduction
of standard rate. Henderson is one of the largest farmland owners in HK.
? Reiterate Add with a TP of HK$38.3. HLD trades at an attractive valuation of
a 56% discount to NAV and offers a 6.4% FY22F dividend yield.
HK development projects: Management still optimistic
? Henderson Land Development’s (HLD) management believes the market sentiment in
HK is still good, as illustrated by its recent launch of the Phase 1 of Baker Circle in
Hung Hom, which was oversubscribed by over 6 times in Jun.
? HLD’s 4M22 HK sales grew 10% yoy, with more projects to be launched in 2H22F.
? Management also stressed the cost advantages of its land reserves in Northern
Metropolis compared with its peers.
? Management said HLD will further speed up farmland conversion and that the
introduction of a standard rate for conversion should help shorten the conversion time.
HK investment projects: Occupancy not affected much by Covid-19
? Retail sales rebounded in Apr, especially for the food and beverages segment, due to the
relaxation of social distancing measures and Phase 1 of the government’s electronic
voucher scheme.
? Management noted that the fifth wave of the Covid-19 outbreak did not affect the
occupancy rate of its retail malls much. For instance, occupancy reached 95% for IFC
mall and 90-100% for malls in New Territories in Apr. Also, management expects the
rental relief measures by HLD to be less this time vs. the fourth outbreak wave.
? Although there are fewer new MNCs moving to HK recently due to the Covid-19
pandemic, management saw upgrading demand by office tenants within HK as there
are continuous lease enquiries on IFC, The Henderson — its new office building in
Murray Road, which is expected to be completed in 2023F.
? Management said that the rent of The Henderson will be some 10% higher than the
effective rent of IFC offices.
China land bank growth will be very selective
? Management said that HLD has slowed down its land bank expansion in China in the
past few years; its exposure is mainly in the top-tier cities in China. Should there be
any attractive acquisition opportunities, management said that it preferred owning
controlling stakes so that it can control the financials at project level.
? For investment properties, HLD prefers offices in prime cities in China as it believes
the office market in China has strong growth prospects.
Impact of interest rate rise and dividend policy
? Management expects the Hibor-based mortgage rate in HK to increase further on the
back of the US rate hike but thinks HK will not fully follow the US due to sufficient
liquidity in the HK banking system.
? Given the shortage of housing supply in HK, HLD expects home prices to maintain
stable unless interest rates see an unexpected surge.
? According to HLD’s dividend policy, its annual dividend payout will maintain at an
absolute amount regardless of net profit volatility.
Reiterate Add rating, with an unchanged TP of HK$38.30
? We reiterate Add rating on HLD, with an unchanged TP of HK$38.30, on the back of
its large land reserves and rich farmland exposure in HK.
? Key downside risks are a prolonged Covid-19 outbreak in HK and delayed re-opening
of HK’s borders.
? Stronger-than-expected rental reversions in IP are a re-rating catalyst for HLD.