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

Hongkong Land Holdings Limited (SGX: H78) reported its latest earnings yesterday evening. The reporting period was for the six month period from 1 January 2016 to 30 June 2016.

As a brief introduction, Hongkong Land is a leading property investment, management, and development group in Asia with operations primarily in Hong Kong, Singapore, and mainland China. Its business can be segmented into the ownership of commercial offices and the development of residential real estate.

Financial highlights

Here’s a rundown on some of the latest financial figures for Hongkong Land:

  1. Revenue for the first six months of 2016 fell by 13.5% to US$782.8 million compared to a year ago.
  2. However, underlying net profit for the six month period was down by ‘only’ 6% from US$419 million for the first-half of 2015 to US$393 million. Profit attributable to shareholders was US$1.26 billion, up 146% year-on-year – there was a boost from the gain in fair value for investment properties of US$986 million.
  3. Subsequently, underlying earnings per share (EPS) also fell 6% from 17.82 US cents in the first-half of 2015 to 16.70 US cents in the first-half of 2016. EPS was up 146% year-on-year from 21.79 US cents to 53.70 US cents.
  4. Hongkong Land’s underlying net profit was affected by a 30% fall in the share of results of associates and joint ventures, which came in at US$59.6 million for the first half of 2016.
  5. Moving on, cash flow from operations came in at US$467.4 million for the first-half of 2016 with capital expenditure clocking in at just US$62.2 million. This gave Hongkong Land healthy free cash flow of US$405.2 million, more than double the US$144.1 million seen a year ago (US$200.6 million in cash flow from operations and US$56.5 million in capex).
  6. As of 30 June 2016, the firm had US$1.56 billion in cash and equivalents and US$3.88 billion in borrowings. This is an improvement from the US$1.7 billion in cash and equivalents and US$4.3 billion in borrowings it had a year ago.

In all, both revenue and underlying profits fell for Hongkong Land. On a positive note, the property owner-developer still generates healthy free cash flow. This could be important, since Hongkong Land maintains a net debt position currently.

Hongkong Land’s net asset value, an important gauge for the company’s real business value, inched up to US$12.64 per share. This compares with the net asset value per share of US$12.19 recorded a year ago.

The company’s board of directors also proposed an interim dividend of US$0.06 per share, unchanged from the same period last year.

Operational highlights

Revenue for Hongkong Land was down due to lower sales of properties. The company’s property sales fell from US$419.9 million in 2015’s first-half to US$290.2 million in the reporting period. Revenue from Hongkong Land’s rental income and service income components both rose modestly to US$427.7 million and US$64.9 million, respectively.

Hongkong Land said that low office vacancy levels had continued to support the Hong Kong market. Vacancy at the end of June 2016 was 3.1%, down from 3.4%  recorded at the end of December 2015.

The company’s office rental reversions in Hong Kong were also positive. Moreover, there was growth in Hongkong Land’s average office rent from HK$101 per square feet (sqft) in the first-half of 2015 to HK$103 per sqft in the reporting period.  Retail rental, though, retreated from HK$219 per sqft in the first-half of 2015 to HK$216 per sqft for 2016’s first-half.

Hongkong Land’s residential business in the first-half of 2016 was lower than the same period last year, as steady contribution from China was offset by a lower contribution from Singapore. As of 30 June 2016, Hongkong Land had US$885 million in sold but unrecognised sales.

YK Pang, Hongkong Land’s chief executive, will be stepping down on 31 July 2016 and will be succeeded by Robert Wong. John Witt, Hongkong Land’s chief financial officer, had stepped down on 31 March 2016 and has been replaced by Simon Dixon.

Ben Keswick, Hongkong Land’s chairman, shared the following comments on the company’s outlook:

“While the performance from the Group’s commercial portfolio is expected to remain stable for the full year, earnings from the residential business are likely to be lower as an improved contribution from mainland China will be more than offset by lower contributions elsewhere.”

As of its closing share price of US$6.64 yesterday, Hongkong Land trades at a trailing price-to-book ratio of around 0.50 and has a trailing dividend yield of around 2.9%.

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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