Hongkong Land Holdings Limited (SGX: H78), or HK Land, operates in the property sector. It is mainly involved in the property development, investment, and management businesses. Its property arm has interests spread across China, Southeast Asia and in its home base of Hong Kong. In the last five years, the company’s share price has fluctuated between US$5.50 and US$8.50.
Presently, its price is almost similar to that of five years ago. For most investors, HK Land looks like a value trap. Yet, I think investors may have overlooked a number of things about the company. Here, I’ll look at two reasons why HK land looks like a good buy now.
When I look at HK Land, the first thing that comes to my mind is “it’s cheap”. But why is it cheap? Let’s consider a simple metric – price to book (PB) ratio, a metric most relevant to it given the nature of its business.
In the last decade, HK Land’s shares have traded at PB multiples roughly between 0.4 to 1.0 times. Presently, it has a PB ratio of 0.45 times, which is on the lower end of the spectrum. I don’t know about you but for me, that makes HK Land really cheap!
Nevertheless, some might worry that it might be a value trap. After all, some companies remain cheap over a long period of time. The good news here is that HK land is probably NOT a value trap. And that brings us to our second point below.
Growing book value
Over the years, HK Land has grown its book value. Let’s look at some numbers. From 2009 to 2018, its per-share book value has grown from US$5.67 to US$15.98. This translates to a 12.2% compound annual growth rate (CAGR). If it can continue to grow as such a rate, a dollar of capital will turn into $1.78 in five years.
In other words, despite its weak-performing share price, HK Land’s business has not remained stagnant over the years. Thus, as long as it can continue to grow its book value over time, its intrinsic value will grow. Over time, its share price will reflect the growth in intrinsic value (though, unfortunately, we do not know when that will happen).
Overall, I think HK Land is a cheap stock that is worth further consideration by patient investors, especially given its strong track record of growing book value. Nevertheless, investors should carry out further research on the company before buying its stock.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of Hongkong Land Holdings.