Interim Result Analysis: Benefitting from increased interest income
- 1HFY24 underlying earnings grew 5% to HK$2.94bn, 13% above our estimate, due to stronger-than-expected interest income
- Rich pipeline of new project launches in 2024
- Net cash holding increased slightly to HK$43.3bn in Dec-23
- BUY for impeccable balance sheet strength with TP of HK$10.78
Lifted by stronger interest income. Sino Land’s 1HFY24 underlying earnings grew 5% to HK$2.94bn. The increase in interest income resulting from HIBOR hikes more than offset the shortfall in development earnings. Interim DPS remained stable at HK$0.15.
Narrower margins dragged development income. Including joint ventures, development profit was 24% lower at HK$845m. Major projects booked included La Marina, St. George’s Mansions, Grand Victoria, and One SOHO. Operating margins narrowed to 12.7% from 1HFY23’s 28.4%. Sino Land consortium sold an additional 36 units at La Marina after lowering prices in Nov -23. La Marina is now c.90% sold. About 75% of the units at Grand Victoria have been sold since its initial launch in 2021. Sales at the newly completed 60%-owned One SOHO have been improving. As of Dec-23, Sino Land had a net order book of HK$9.4bn, of which HK$2.2bn would be booked in 2HFY24.
Rich project launch pipeline. In 2024, Sino Land plans to offer One Central Place in Central, Grand Mayfair III in Yuen Long, Lohas Park Package 13 in Tseung Kwan O, and Yau Tong Ventilation Building project, in addition to continued sales at La Montagne and Villa Garda III.
New footage to augment rental income. Gross rental receipts rose 3% to HK$1.78bn, aided by fresh contributions from new investment properties including Landmark South, One North, and 38 Wing Kei Road (an industrial building in Kwai Chung) and The Koko in Shenzhen. Increased retail turnover rents and reduced amortised rental concession also contributed to modest retail income growth. However, due to increased leasing expenses incurred for new projects and higher repair and maintenance costs, net rental revenue was marginally lower at HK$1.47bn. Overall portfolio occupancy stood at 90.8% in 1HFY24 (1HFY23: 91.1%). Office reversion growth remains in the negative territory, with average occupancy sliding 0.7ppts to 86.6% in 1HFY24. Retail portfolio occupancy fell to 93.4% from 1HFY23’s 94.9% due to discontinuation of a show flat at Olympian City 2 since Jul-23. Excluding this impact, retail portfolio would have seen largely stable occupancy. Residential portfolio was the bright spot, with occupancy jumping 7.8ppts to 87.9%.
Hotel recovery on track. Hotel earnings further improved 10% to HK$254m, thanks to improved contributions from Conrad Hong Kong. RevPAR of “Fullerton” branded hotels in Singapore and Sydney have exceeded pre-pandemic levels.
On acquisition mode. Since Sep-23, Sino Land acquired three residential or residential/retail sites in Kai Tak, Kowloon City, and Cheung Sha via public tenders – through consortiums or on its own. These projects will altogether provide total attributable GFA of 0.81msf when completed. Based on current selling prices, they should offer a decent profit margin of >35% given favourable land costs.
Impeccable balance sheet for more land acquisitions. Despite a string of land purchases, Sino Land’s net cash holding rose slightly to HK$43.3bn in Dec-23 from Jun-23’s HK$42bn, thanks to receipts of property sales and increase in interest income. This puts the company at an advantageous position to explore land acquisitions amid falling land prices.
BUY with HK$10.78 TP. In the past six months, Sino Land shares have fallen by 6%. Meanwhile, the stock is trading 61% below our appraised current NAV. Excluding its net cash holding, the remaining stub is trading at an 80% discount, which sounds enticing. Major investment appeal lies with its robust balance sheet strength, allowing the company to pursue value-accretive acquisitions for long-term growth. Based on target discount of 50% to our Dec-24 NAV estimate, we set our TP at HK$10.78. Reiterate BUY.
