Hongkong Land Holdings Limited (SGX: H78) is a multi-billion real estate company with business interests in China, Southeast Asia, and its home base of Hong Kong. The company was founded in 1889, giving it a long history of more than 120 years.
In more specific terms, the company owns and manages commercial and retail properties in many different territories such as Hong Kong, Singapore, Macau, Thailand (Bangkok), Indonesia (Jakarta), and Vietnam (Hanoi). Hong Kong is the most important geography for the company; it has a portfolio of 12 buildings there.
Hongkong Land also has numerous residential developments in the above-named countries as well as in China and the Philippines. Additionally, it has a mixed-use project under development which will give it access to Cambodia.
With Hongkong Land’s exposure to developing as well as more mature economies in East and Southeast Asia, has the company positioned itself well for future growth?
Let’s use four value metrics to determine how healthy the company is. The metrics are the price to earnings (P/E) ratio, price to book (P/B) ratio, net gearing, and dividend yield.
Hongkong Land is currently trading at a price of US$6.85. Its trailing-12-months (TTM) earnings per share stood at US$0.54, implying a P/E ratio of 12.8.
This is not much higher than the P/E ratio of the SPDR STI ETF (SGX: ES3) – an exchange-traded fund that tracks the Straits Times Index (SGX: ^STI) – which stands at 11.6. And, investors may want to note that the company might have good growth potential due to its exposure to many fast-growing countries as mentioned earlier.
Next we shall look at the P/B ratio of the company. The company had a net asset value (NAV) of US$11.76 per share as at end-June 2015. This gives Hongkong Land a P/B ratio of just 0.59. What this means is that investors are getting a huge 41% discount on the firm’s assets net of all liabilities. This also provides investors with a substantial margin of safety.
Hongkong Land’s net gearing (net debt over equity) stood at a very respectable 9% as at 30 June 2015, with an average interest cost of 3.2%. That’s a healthy balance sheet. It is important that the company maintains its balance sheet strength. This is to ensure it can survive downturns and the rather bumpy ride that is often seen when investing in developing countries.
Lastly, the company paid out a dividend of US$0.19 per share in 2014. Based on this payout, Hongkong Land’s dividend yield stands at 2.75%. What needs to be noted is that the company is rather conservative when it comes to dividends, with the payouts standing at around a third of earnings over the last three years (2012 to 2014). Hongkong Land has managed to maintain its half-yearly payout at US$0.06 per share in the first six months of 2015.
Looking at the four metrics above, it does look like Hongkong Land has some likeable business fundamentals. What we as investors need to do now is to assess if the company possesses characteristics which we are interested to add to our portfolio.
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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 Esjay does not owns shares in any companies mentioned.