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Henderson Land

Henderson Land

Hong Kong | Properties

 

Company description

 

 

Henderson Land Development (HLD) is the 4th largest property developer and landlord in Hong Kong, including ~41% stake in the iconic IFC office towers and retail mall. The group also owns the largest agriculture landbank in HK (44.9 million square feet as of June 2017) and has sizeable exposure in Chinese properties with 91 million square feet of development landbank (18% in prime cities; 82% in 2nd and 3rd tier cities). The group’s land banking strategy focuses on conversion of farmland and urban redevelopment of old buildings.

 

Investment thesis

 

Henderson Land’s (HLD) land banking strategy in Hong Kong focused on converting farmland, acquiring old buildings and offering new tenders for future value enhancement. The government’s priority to increase land supply for housing and economic development in Hong Kong should help HLD unlocking the value of its long-held farmland reserves. HLD has also been actively monetising its non-core assets to take advantage of the current yield compression environment. However, they reinvested the proceeds on high-cost projects like Kai Tak and Murray Road which may increase margin pressure should the market sentiment reverse by the time the projects are completed after 2020.

 

Investment summary

 

·         Progress on farmland conversion at lower land premium than public tender.

 

·         Continuous disposal of non-core assets at compressed yield.

 

·         Potential share buyback or increase in dividend payout.

 

·         Bonus issues turned ex-dividend on 21 June. During its annual results announcement in March, the company declared the bonus issue of one new share for every ten shares held.

 

·         Riding on the policy tailwinds. While Henderson’s substantial land banking projects are likely to benefit from the Hong Kong government’s policy tailwinds to increase land and housing supply, the conversion of farmland into developable land would take time.

 

 

·         Rising risk of prime rate hike in Hong Kong overweighs the policy tailwinds. As the spread between LIBOR-HIBOR narrows to only 27 bps, banks in Hong Kong may soon lift prime rate to maintain profit margins. The potential mortgage rate hike may reverse residential property market uptrend and drive de-rating of developers.