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

Hongkong Land Holdings Limited (SGX: H78) reported its earnings yesterday evening. The reporting period was for 1 January 2015 to 31 December 2015.

As a brief background for context later, 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.

You can read more about Hongkong Land in here or catch up with its previous earnings report here.

Financial highlights

The following’s a rundown on the latest important financial figures from Hongkong Land:

  1. Revenue for 2015 rose by 3% to US$1.93 billion.
  2. Underlying net profit for the full year period fell by 3% from US$930 million in 2014 to US$905 million.
  3. As such, underlying earnings per share (EPS) also fell 3% from 39.52 US cents in 2014 to 38.44 US cents in 2015.
  4. For the full year, cash flow from operations was US$896.2 million with major renovations expenditure and developments capital expenditure clocking in at US$210.1 million. This gave Hongkong Land a healthy free cash flow of US$686 million, up 31% from the US$524.6 million (US$699 million in cash flow from operations and US$174 million in total capex) seen in 2014.
  5. As of 31 December 2015, the firm had US$1.56 billion in cash and equivalents and US$3.9 billion in borrowings. This is an improvement from the US$1.66 billion in cash and equivalents and US$4.3 billion in borrowings it had a year ago.

In all, Hongkong Land’s top-line inched up but its bottom-line dipped instead. A bright spot could be seen in how the property owner-developer had generated healthy free cash flow for the year. This is important as Hongkong Land maintains a net debt position currently.

The book value for Hongkong Land, a gauge for the company’s business value, also inched up 4% to US$12.91 per share from US$11.71 previously.

The board of directors had proposed a final dividend of US$0.13 per share for 2015. Together with the interim dividend of US$0.06, Hongkong Land will be paying out US$0.19 per share in dividend for 2015, unchanged from the previous year.

Operational highlights

Revenue from sales of properties increased from US$910 million in 2014 to US$955 million in 2015. Meanwhile, rental income and service income recorded $851.1 million and $126.1 million in revenue, respectively, for the full year. All three revenue segments had grown in the year, with sales of properties leading the way with a 4.9% increase. Rental income took up the rear with 1.0% growth, while service income logged a 1.8% increase.

The commercial office market in Hong Kong saw some improvement against a background of limited premium grade space. Vacancy for Hongkong Land’s offices in the Central region of Hong Kong on 31 December 2015 was 3.4%, down from 4.2% at end-2014.

Meanwhile, the company’s Singapore properties had a vacancy rate of 3% at end-2015, up from 1.7% in the previous year. While this seems like a big jump, Hongkong Land noted that the vacancy rate of 3% would have been 1% if space already committed under new leases were taken into account.

Ben Keswick, the chairman of Hongkong Land, commented on the company’s outlook for the future in the earnings release:

“While trading profits from the Group’s operations should remain sound in 2016, a reduced contribution from residential developments is expected to result in underlying earnings being lower.”

Last but not least, investors should note that Hongkong Land’s chief executive officer and chief financial officer will be departing the company to take up other roles within the sprawling Jardine business empire of which Hongkong Land belongs to. Keswick explains:

“Y.K. Pang will step down as Chief Executive on 31st July 2016, while remaining a director of the Group, to become deputy managing director of Jardine Matheson. He will be succeeded by Robert Wong, currently responsible for the Group’s residential developments.

In addition, John Witt will step down as Chief Financial Officer on 31st March 2016 to take up the position of group finance director of Jardine Matheson, and will be replaced on 28th April by Simon Dixon, currently the finance director of Astra International. We are grateful to Y.K. and John for their leadership and significant contributions to the Group over the past years.”

Both Wong and Dixon have been long-time Jardine people. The former joined the group in 1985 while latter had joined in 2006.

Foolish summary

As of its closing price yesterday of US$6.02, Hongkong Land traded at a trailing price-to-book ratio of just 0.5, and has a trailing dividend yield of around 3.2%.

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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 owns shares in Hongkong Land Holdings