Rental- and deposit-driven profit growth
- SL’s 5% yoy increase in underlying profit in 1HFY24 was primarily driven by a jump in interest income from time deposits.
- Its DP sales bookings should be lower hoh in 2HFY24F, in our view. It targets to launch four new residential projects in HK for sale in CY2024F.
- Its rental income registered first yoy growth since 1HFY20. We think its positive retail rental reversion trend should continue in 2HFY24F.
- Reiterate Add, with an unchanged TP of HK$9.5 (50% discount to NAV).
5% increase in underlying profit, driven by interest income
Sino Land (SL) reported a 5% yoy increase in underlying profit in 1HFY24 to HK$2.9bn, 13% above our estimate of HK$2.6bn, due to: 1) higher-than-expected development property (DP) profit booked in 1HFY24, and 2) a 94% yoy jump in interest income (HK$1.17bn) from time deposits (5% p.a.). Interim DPS was unchanged yoy at HK$0.15.
DP sales booking in FY24F tends to be front-loaded
SL booked HK$6.6bn of attributable DP sales with a GPM of 12.7% in 1HFY24, down from 28.4% in 1HFY23, due to: 1) absence of high-GPM projects, such as Grand Central, for booking, and 2) delivery of low-GPM projects (e.g. Grand Victoria Phases 2 and 3). Its DP sales booking amount would be lower in 2HFY24F, in our view, as it has secured a backlog of just HK$2.2bn for the period so far. SL will launch four new residential projects in HK inCY24F, with a total of over 4,000 flats (based on 100% stake) for sale. SL was active in growing its landbank in 1HFY24, having acquired three residential projects in HK with an attributable GFA of 0.8m sf.
First yoy growth in rental income since 1HFY20
SL’s gross rental income (GRI) from investment properties (IP) increased by 2.8% yoy in 1HFY24 (positive yoy growth for the first time since 1HFY20); rental GPM declined by 3% pts yoy to 82% due to leasing expenses for newly completed projects (One North and Landmark South). Overall IP occupancy was flat yoy at 91% in 1HFY24. Most of its business segments (retail, industrial and residential) reported yoy increases in GRI. Most of the retail rental contracts renewed in 1HFY24 saw positive rental reversions; we expect the reversion trend to continue in 2HFY24F given tenant sales improvement.
Reiterate Add; unchanged TP
We tweak FY24F/25F/26F EPS by +4%/-3%/-3% to factor in higher interest income in FY24F and lower DP sales GPM with softer price growth assumptions in FY25-26F. Our TP for SL remains unchanged at HK$9.5, still based on a 50% discount to end-FY24F NAV of HK$19. Reiterate Add; its strong net cash position of HK$43bn (end-Dec 23, consolidated basis) and recurring income from IP support sustainable DPS growth, in our view. Key downside risks: slower-than-expected DP sales value and GPM and weakerthan-expected office rental. Stronger-than-expected tenant sales and NAV-accretive acquisitions are re-rating catalysts for SL.
