Market Check-up on Hongkong Land Holdings Limited: Is This an Opportunity for Investors?

Last week, Hongkong Land Holdings Limited (SGX: H78) reported its earnings for its fiscal year ended 31 December 2014.

Hongkong Land is a leading property investment, management, and development group with operations primarily in Hong Kong, Singapore, and mainland China. Its business can be segmented into the commercial office rental market and residential real estate development.

This is a quick check-up to see if the property management outfit may represent an investing opportunity.

By the numbers

Here’s a quick rundown on Hongkong Land’s latest financial figures:

  1. Overall revenue for the whole of 2014 was US$1.8 billion, up 1% compared to 2013.
  2. For the year, profit attributable to shareholders did better – up 12% compared to 2013. Profit came in at US$1.3 billion for 2014.
  3. 2014’s earnings per share (EPS) followed suit with a 12% rise from 50.56 US cents in 2013 to 56.42 cents.
  4. For the full year, cash flow from operations came in at US$699 million with developments capital expenditure clocking in at US$136.6 million. The low capex gave the property management outfit US$562.4 million in positive free cash flow. This is a decrease from 2013’s free cash flow of US$773.9 million.
  5. As of 31 December 2014, the group had US$1.65 billion in cash and equivalents and US$4.3 billion in borrowings. This is an improvement compared with a year ago when Hongkong Land had US$1.41 billion in cash and equivalents and US$4.43 billion in borrowings.

Rounding up the numbers, we can see that for 2014, Hongkong Land had about the same level of revenue, but higher profits. This was down mainly to lower cost of sales in 2014. The increase in profit may have prompted management to declare a higher dividend; Hongkong Land’s dividend for 2014 was US$0.19 per share, a 6% bump up from 2013’s dividend of US$0.18.

Hongkong Land’s profit growth also helped to grow its book value, an important gauge for the company’s real business value. As of 31 December 2014, the property outfit’s book value was US$11.71 per share, up 3% from US$11.41 at end-2013.

Going forward, we should continue to observe if Hongkong Land’s cost improvements – a big driver for its bottom-line improvement – are sustainable.

Operational highlights

Overall, the commercial office market in Hong Kong remained subdued. That said, Hongkong Land managed to eke out a 3% rise in average office rent to HK$102 per square feet while reducing vacancy to 5.4% at 31 December 2014 (vacancy was higher at 6% at end-June 2014). Those are positive developments.

In terms of vacancy, commercial office market conditions were better in Singapore, where vacancy was 1.7% at end-2014 – a slight increase from 1.4% at the end of June 2014.

On the residential development segment, revenue recognized during the year rose 38% from US$451 million to US$621 million. This was mainly driven by sales of residential units in Hong Kong and Macau.

Foolish summary

In a short snippet, Ben Keswick, Chairman of Hongkong Land, added his thoughts on the company’s outlook ahead:

“Conditions in the commercial leasing market in Hong Kong are likely to remain stable in 2015 as supply continues to be limited. In the residential business, while further strong profits are expected from our activities in mainland China, earnings are projected to be lower overall due to reduced profits from other markets.”

Said another way, we should not expect too much growth in the near term from Hongkong Land’s prime markets like Hong Kong. That said, the company does own properties in prime locations within the land-scarce city of Hong Kong and that could prove to be valuable for the company’s long-term future.

For the interested Foolish investor, Hongkong Land last traded at around 0.66 times its book value and has a dividend yield of about 2.5% based on 2014’s dividend of US$0.19 per share. Hongkong Land’s shares closed on Friday at US$7.73 each.

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.