I have accumulated a bit more HK Land today at a share price of US$6.15 for 1,000 shares.
This is an average up position from my last purchase back in April which I wrote
here.
Part of the fund came from my recent divestment from UOL which I will talk about in more detail in the next portfolio review. So I am just shifting capital here.
The company recently reported their 1H results which surprisingly came above my expectations, albeit still weaker if compared year on year. I’d have expected a lot weaker sales from the residential segment, but they have surprised on the completion from China.
My way of analyzing this company is to focus on the underlying and recurring earnings, which technically strips out the fair value gains and the residential earnings, and then further see what is left with it. It’s a simpler method to do because the residential portion is something which is more lumpy in nature and difficult to forecast on the timeliness of the revenue recognition.
Recurring Earnings
Underlying earnings per share for the first half came up to US$ 16.70 cents, which is 6% lower from the previous year on the back of a slightly weaker residential sales.
Do also note that 1H 15 earnings included a one-time write back of US$16m from its MCL’s projects so if we strip that out, we are looking at somewhere in line.
Commercial office rental earnings continue to outperform as there are tighter vacancy for Grade A offices in HK. Rental reversion for the first half amounted to 2% increase from HK$101/psf in 2015 to HK$103/psf in 2016. The current cap rates for the commercial properties in HK is currently at 3% but is expected to plateau at very tight levels, mainly due to the risk-on approach for delaying rate hikes.
I won’t be delusional here. There are potential downside to this, just like any other asset classes, so the risk is there.
The HK portfolio retail earnings dip slightly by 1% year on year from HK$218/psf to HK$216/psf in 2016.
The Singapore portfolio which comprises of both the office and retail earnings also took a slight dip in 2016 as the glut of office supply and weaker rental markets take precedence. We are already familiar with that from the Reits which are suffering from the same here.
I’ve updated the spreadsheet to include the 1H 2016 results.
Valuations still remain “cheap” compared to their 10 years long term mean. Cheap can remain cheap for a very long time. One only has to compare this to Wharf Holdings and New World Development listed in HK to understand what I mean.
I am expecting dividends for the year to remain at US$ 19 cents, which translates to about 3% yield at current price. The recurring income will be more than sufficient to pay out dividends comfortably. The company has also a strong balance sheet with net gearing of 8%. So I am not expecting any liquidity issues here.
China devaluation remains a risk since the business is in close proximity and directly related with China and the Yuan.
*Vested with 2,500 shares as of writing.
Hi B,
Thanks for the detail analysis!👍👍 I bought this after reading your first blog post ,,of course with my own due diligent 😃😃, I like this counter mainly on low debts/ Equity ratio among the blue chip property developer,, and of course ,, buying $1 worth things with $0.50 ,,, base on Low PB.. Cheers ! Let' s be patient on this under current volatile market ,,✌️✌
Hi STE
Ahh didn't know you also have this!! 🙂
It's a good company and is a conglomerate selling at a discount. I think it's a good buy 😉
I have it in my counter as well. May I know what is underlying eps?
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