Hongkong Land Holdings Limited’s Latest Earnings: What Investors Need to Know

Hongkong Land Holdings Limited (SGX: H78) reported its earnings for the first-half of its fiscal year ending 31 December 2015 yesterday evening. The reporting period was for 1 January 2015 to 30 June 2015.

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 mainly commercial office rental market and residential real estate development.

You can read more about Hongkong Land in here or catch up with the firm’s previous quarter’s earnings here.

Financial highlights

The following’s a quick take on Hongkong Land’s latest financial figures:

  1. Revenue for the first six months of 2015 rose by a hefty 50% to US$905.1 million on a year on year comparison.
  2. However, net profit for the six month period fell 9% from US$567.7 million in the first half of 2014 to US$516.5 million.
  3. Consequently, earnings per share (EPS) also fell 9% from US$0.2391 to US$0.2179.
  4. Hongkong Land’s net profit was affected by a 50% plunge in share of results of associates and joint ventures which came in at US$98.8 million for the first half of 2015.
  5. Moving on, Hongkong Land brought in US$200.6 million in cash flow from operations for the first half of 2015 with capital expenditures clocking in at just US$56.5 million. This gave Hongkong Land a healthy free cash flow of US$144.1 million, though it’s down slightly from the figure of US$151.3 million seen a year ago (US$226.8 million in cash flow from operations and US$75.5 million in capital expenditures).
  6. As of 30 June 2015, the firm had US$1.7 billion in cash and equivalents and US$4.3 billion in borrowings. This is an improvement from a year ago when it had US$1.4 billion in cash and equivalents and US$4.6 billion in borrowings.

In all, Hongkong Land’s top-line had moved up sharply but its bottom-line fell instead. The good news is that the property owner-developer still generates healthy free cash flow. This is important, as Hongkong Land maintains a net debt position currently.

The book value for Hongkong Land, a gauge for the company’s real business value, inched up to US$11.76 from US$11.71 a year ago.

Hongkong Land’s board of directors also proposed an interim dividend of US$0.06 cents per share, which was unchanged from the same period last year.

Operational highlights

Revenue for Hongkong Land was up sharply due to sales of properties which increased from US$115.8 million in the first half of 2014 to US$419.9 million in the first half of 2015. Revenue from its rental income and service income components were relatively unchanged from a year ago.

On an underlying profit basis (which nets out the effects of property valuation gains), Hongkong Land’s profits fell from US$433 million in the first half of 2014 to US$419 million in the first half of 2015.

The company commented that the commercial office market in Hong Kong showed signs of improvement and is poised to benefit from lack of supply of comparable office space in Hong Kong. Vacancy at the end of June was 4.2%, down from 5.4% at the end of December 2014.

The group’s residential business in the first half of 2015 was higher than the same period in 2014, benefitting from higher contribution from China. As of 30 June 2015, Hongkong Land had US$585 million in sold but unrecognised sales. The firm also signed a memorandum of understanding to establish a joint venture for a mixed-use project in Pudong, Shanghai.

Ben Keswick, the Chairman of Hongkong Land, had the following comments regarding the company’s future outlook:

“While the strong performance from the commercial portfolio is expected to continue in the second half of the year, earnings from our residential business will be lower than last year mainly due to fewer completions in Singapore and no sales in Hong Kong.”

Foolish summary

As of its closing price yesterday of US$7.64, Hongkong Land traded at a trailing price-to-book ratio of 0.65, and has a trailing dividend yield of around 2.5%.

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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.