DBS Group Research analysts Jeff Yau and Percy Leung are keeping their “buy” call on Hongkong Land with a lower target price of US$5.93 ($7.82) from US$6.14 previously.
In their report dated Jan 16, the analysts note that the stock, which closed at US$4.89 on Jan 13, is trading at a 58% discount to their appraised current net asset value (NAV). They add that the stock is deemed “attractive from a historical viewpoint”.
“Our target price for Hongkong Land is premised on a 50% discount to our December 2023 NAV estimate,” the analysts continue.
To Yau and Leung, Hongkong Land has several positives including steady rental income despite the challenges in the market.
“Vacancy of Central office portfolio is lower than the broader market at around 5%, thanks to continued ‘flight to quality’ demand. However, rental reversion should remain in negative territory in the near term given high expiring rents,” they write.
“Average net rents of Central retail portfolio should be recovering as temporary rental reliefs are fading. Singapore portfolio remains a bright spot with favourable rental growth on renewal. Overall, Hongkong Land’s rental income should be largely stable,” they add.
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Furthermore, the analysts see that the group’s share buyback programme should limit any downside risk in the near term.
That said, the construction delays due to the pandemic-led restrictions in China, may result in a deferral of development profit booking in the 2HFY2022, dragging its earnings in the near-term.
“This should in turn lead to underlying profit shortfall in FY2022,” the analysts note.
Shares in Hongkong Land closed 11 US cents lower or 2.25% down at US$4.79 on Jan 17.
