At its current share price of US$7.46, real estate owner and developer Hongkong Land Holdings Limited (SGX: H78) may be both cheap and affordable. A case for affordability Let’s deal with the second point on affordability first. This might seem like a moot point, but it’s still worth pointing out for anyone unaware that stock exchange operator Singapore Exchange had reduced the board lot size for shares traded in Singapore from 1,000 to 100 on 19 January this year. Prior to that, one lot of Hongkong Land at its current price would set an individual investor back by at least US$7,460….
At its current share price of US$7.46, real estate owner and developer Hongkong Land Holdings Limited (SGX: H78) may be both cheap and affordable.
A case for affordability
Let’s deal with the second point on affordability first. This might seem like a moot point, but it’s still worth pointing out for anyone unaware that stock exchange operator Singapore Exchange had reduced the board lot size for shares traded in Singapore from 1,000 to 100 on 19 January this year.
Prior to that, one lot of Hongkong Land at its current price would set an individual investor back by at least US$7,460. But today, one lot of the real estate outfit would cost only US$746 (without taking into account any transaction-related fees).
A case for cheapness
With affordability out of the way, let’s move on the meat of the issue – cheapness.
Hongkong Land has a portfolio of investment properties – mostly commercial real estate that’s located in Hong Kong’s central business district (the Central area) and Singapore – worth a total of US$28.1 billion at end-2014. That sum is more than four-fifths the company’s total assets of US$33.6 billion.
As a property owner, a huge chunk of Hongkong Land’s true economic worth as a business will be tethered to the real estate that it owns. Because of this, a comparison of Hongkong Land’s book value (total assets minus total liabilities) with its market cap can be a suitable rule of thumb for determining how cheap its shares are.
On that note, Hongkong Land has a price-to-book (PB) ratio of just 0.64 at the moment.
Source: S&P Capital IQ
And as you can see above, that PB ratio of 0.64 is quite a fair bit lower than the long-term average PB ratio of 0.77 the company has had from April 1995 to today.
Besides having a low valuation in relation to its own history over the past 20 years, Hongkong Land has also produced some remarkably steady growth in its business fundamentals.
As an example, the company’s book value per share has nearly tripled from US$3.46 in April 1995 to US$11.71 today; this has been underpinned by remarkably resilient rental rates for Hongkong Land’s portfolio of commercial properties in Hong Kong’s Central area (the average rent for those properties had grown in each calendar year from 2005 to 2013; the rates had increased from US$3.78 per square feet per month to US$12.70 per sq. ft per month).
The firm has also either grown or maintained its annual dividend over the past 11 years as you can observe in the table below:
|Year||Dividend per share (US cents)|
Source: S&P Capital IQ
A Fool’s take
None of the above is meant to say that Hongkong Land will be a good investment. Despite the positives going for it – a low valuation and strong historical growth – the company might still be an expensive mistake if its future business performance ends up being disappointing.
In Hongkong Land’s latest earnings release, the firm had touched on a subdued environment for the commercial office market in Hong Kong. That’s just one example of possible areas of concern that investors might want to note with the company’s future.
All told, investors would have to weigh the risks and rewards with Hongkong Land in order to come up with an intelligent investing decision.
But whatever the conclusion, there’s no mistake in saying that Hongkong Land has indeed become more affordable in Singapore now.
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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 Chong Ser Jing doesn't own shares in any company mentioned.