The Singapore stock market benchmark, the Straits Times Index (SGX: ^STI), consists of 30 stocks (also known as blue-chips). Since the index is widely followed in the investing world, we would expect many of the companies to be priced expensively. However, that is far from the truth. There is one blue-chip share – Hongkong Land Holdings Limited (SGX: H78) – that has great business fundamentals and is selling at a knock-down price.
Backed by strong assets
Hongkong Land is a property investment, management, and development group with assets in countries such as Hong Kong, Singapore, and China. The company has two business segments: investment properties and development properties.
For example, in Hong Kong, the property outfit owns assets like Exchange Square, which is home to many leading international investment banks and financial institutions. Hong Kong’s stock market operator is also housed in Exchange Square. In all, Hongkong Land’s Central Hong Kong portfolio represents around 450,000 square metres of prime property.
In Singapore, Hongkong Land has stakes in crucial landmarks such as Marina Bay Financial Centre, One Raffles Quay, and One Raffles Link.
Long-term track record
Hongkong Land has a strong long-term track record. Its investment property portfolio has grown from US$23.7 billion in 2014 to US$33.7 billion in 2018. Along with that, the net asset value per share rose from US$11.75 to US$16.43. Meanwhile, its underlying profit attributable to shareholders has climbed from US$980 million in 2014 to US$1.0 billion in 2018.
The following chart shows the net asset value per share growth in the past five years:
Source: Hongkong Land 2018 annual report
Valuation and dividend yield
Hongkong Land does not have a fixed dividend policy, but it aims to maintain its dividend per share through up-and-down cycles and steadily increase it over time off the back of higher earnings. The trend is evident from the chart below: Source: Hongkong Land 2018 annual report
From 2014 to 2016, Hongkong Land’s underlying earnings fell, but dividends were maintained at US 19 cents. In 2017 and 2018, underlying earnings grew, and that gave rise to dividends increasing year-on-year by 5% and 10%, respectively.
At its current share price of US$6.80 (at the time of writing), Hongkong Land has a price-to-book value of just 0.41 and a dividend yield of 3.2%, which is above Singapore’s long-term average inflation rate of 2.6%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Hongkong Land Holdings Limited. Motley Fool Singapore contributor Sudhan P owns shares in Hongkong Land Holdings Limited.