Here Is Why HongKong Land Holdings Limited Might Interest You

It has been more than 2 weeks since stock exchange operator Singapore Exchange Limited (SGX: S68) reduced the board lot size for the trading of shares in Singapore’s stock market.

And so far, it seems that Singapore Exchange’s seeing signs of success with the initiative with retail investors warming up to the new changes.

But, many retail investors might still not be familiar with companies with high stock prices given their lack of accessibility in the past.

Now that such companies have seen their shares become more affordable given the lot size reduction, it’s perhaps time for us to take a deeper dive into those highly-priced shares to better understand their business.

One such company is HongKong Land Holdings Limited (SGX: H78). As part of the Jardine Group of companies, HongKong Land Holdings is 50.01% owned by Jardine Strategic Holdings Limited (SGX: J37).

The company is priced around US$7.90 per share currently. According to the Singapore Exchange’s old lot size of 1,000 shares, a minimum investment in the company would cost an investor close to US$8,000. However, with the new lot size of 100 shares, investors can easily afford this investment with just US$800 or thereabouts.

But, is this company even worth looking at?

The business

HongKong Land is more of a property investment outfit rather than a property developer.

Although the firm does have a strong property development business (which focuses on developing high-end residential projects in Greater China and Southeast Asia),  the main attractiveness of the company lies with its valuable investment holdings of “grade A” commercial properties across Asia.

For instance, HongKong Land owns 12 highly valuable commercial buildings in the Cheung Wan (also known as Central) region of Hong Kong. Cheung Wan is actually Hong Kong’s Central Business District and HongKong Land’s property portfolio in that area enjoy low vacancy rates (6% at end-June 2014) and has been experiencing stable growth in rents (HongKong Land’s Central portfolio has seen the average office effective rent jump from US$4.04 per sq feet per month in 2004 to US$12.70 in 2013).

The company’s properties in Hong Kong are valued at US$22.3 billion as of the first half of 2014 and that makes up almost 80% of the overall value of the firm’s investment property portfolio.

The next big chunk in the investment property portfolio comes from Singapore, where HongKong Land has interests (either partial or full) in the following top-grade properties: One Raffles Link,  One Raffles Quay, and Marina Bay Financial Centre. These three properties also have high rental rates and low vacancies.

All told, the ownership of commercial properties for investment is such a big segment for HongKong Land that it contributed roughly half of the company’s revenue and 72% of underlying operating profit in 2013.

Interestingly, HongKong Land Holdings has been generating free cash flow over the past five years (except for 2012) and this has given the firm the ability to pay out a consistent dividend.

Year Dividend per share (US cents)
2009 16
2010 16
2011 16
2012 17
2013 18

Source: S&P Capital IQ

Currently, the company has an annualised dividend yield of about 2.3%.

Foolish Summary

Hongkong Land Holdings seems to have many positive investment merits. It is one of the best commercial property owners in the region and has a consistent dividend payout backed by the production of free cash flow.

But, that does not mean an investment into HongKong Land would not come without risks. Hong Kong’s real estate market may have limited upside given that real estate prices there are high. On top of that, HongKong Land Holdings’ residential development business might be impacted if the slowdown in the property markets of China and Singapore continue as a result of the property cooling measures that have been enacted in the two countries.

Investors should weigh the pros and cons themselves to come up with a rational investing decision.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.