CGS-CIMB Research analysts Raymond Cheng, Will Chu and Steven Mak are keeping “add” on Hongkong Land Holdings after the property group announced, on Sept 6, that it would spend up to US$500 million ($672.0 million) in share buybacks.
See: Hongkong Land to spend up to US$500 million in share buybacks
The analysts are also keeping their target price estimate unchanged at HK$5.70, which still based on a 45% discount to net asset value (NAV)
The announcement marks the first time in over 15 years that Hongkong Land announced beforehand, that it was buying shares back from the market.
“We think this reflects management’s positive response to investors’ concerns on Hongkong Land’s persistently deep discount to book value (BV) and NAV,” write the analysts in a Sept 7 report.
The last share buyback conducted by the group was in 2018, when it purchased 18.9 million shares from the secondary market, which is around 0.8% of Hongkong Land’s share capital at the time.
Based on the group’s share price of $4.22 as at market close on Sept 6, the share buyback programme is worth 5.1% of its market value, note the analysts.
In addition, the group is one of the cheapest Hong Kong landlords, with its current price trading at a 59% discount to end-FY2021 NAV.
“As one of the largest office landlords in Hong Kong, its premium office portfolio in Central accounts for 51% of its end-FY21F gross annual value (GAV), based on our estimates,” they write.
“Hongkong Land is trading at an FY2021 dividend yield of 5.2%, higher than the average of 4.6% for other Hong Kong-based landlords and REITS.”
Potential re-rating catalysts include stronger rental growth in its investment property portfolio, while a prolonged Covid-19 outbreak is a key downside risk.
Shares in Hongkong Land closed 11 US cents higher or 2.3% up at US$4.84 on Sept 8, with an FY2021 P/B of 0.27 times and dividend yield of 5.24%.
