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Hongkong Land Holdings (HKL SP): Opportunistic Disposal & EPS Impact – April 2025 Analysis

Posted on April 28, 2025 at 8:51 am (GMT+8)

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CGS International

April 25, 2025

Hongkong Land Holdings Ltd: Strategic Asset Disposal and Future Growth Prospects

Investment Overview

  • Hongkong Land Holdings Ltd (HKL) is strategically disposing of nine floors of office space and two floors of retail space at One Exchange Square (OES) to Hong Kong Exchanges & Clearing Ltd (HKEX).
  • This move is expected to be both NAV- and EPS-accretive.
  • Management has emphasized that this disposal is opportunistic and HKL remains committed to investing in Hong Kong.
  • The report reiterates a Hold rating with a higher target price (TP) of US\$4.91, reflecting a 55% discount to NAV.
  • Future dividends per share (DPS) for FY25F-27F are projected to grow by 4% annually. [[1]]

Details of the One Exchange Square Disposal

  • HKL announced the sale of the top nine floors (Levels 42 to 50) and retail space on Levels 1 and 2 of OES to HKEX, which will establish its permanent headquarters there. [[1]]
  • The gross sales proceeds amount to HK\$6.3 billion (US\$810 million), resulting in a transaction ASP of HK\$42.8k/sf. [[1]]
  • After deducting renovation capex of HK\$0.4 billion that HKL will provide to HKEX, approximately 80% of the net proceeds will be used for debt reduction or new investment property (IP) projects, and about 20% for share buybacks as part of a US\$200 million new share buyback program, effective until December 31, 2025. [[1]]-[[2]]

Financial Impact Analysis

  • The ASP for this transaction is 85% above the average ASP of comparable Grade-A Central office transactions in the past 12 months (HK\$23.2k/sf), translating to a 3.1% rental yield. [[2]]
  • The sale occurs at the market value of OES as of December 31, 2024, with minimal impact expected on HKL’s book value (BV) from the disposal alone. [[2]]
  • The new buyback program, given the significant discount of current price (CP) to previous NAV/share (US\$10.7), is expected to be NAV-accretive. [[2]]
  • Interest expense savings from debt reduction (HK\$200 million p.a.) are expected to be slightly higher than the loss of passing rent after disposal, leading to mild EPS accretion in FY25F-27F. [[2]]

Strategic Commitment to Core Portfolio

  • Management has emphasized that Hong Kong Central remains HKL’s core portfolio, along with West Bund in Shanghai and Marina Bay in Singapore. [[3]]
  • The market should not anticipate similar disposals of Hong Kong assets in the near future. [[3]]
  • HKL remains committed to its US\$400 million investment in the “Tomorrow’s CENTRAL” retail transformation. [[3]]

Revised Earnings and Target Price

  • FY25F-27F EPS is raised by 2-3% after factoring in earnings accretion from interest savings over passing rent loss and the impact of the share buyback. [[3]]
  • FY25F-27F DPS remains unchanged with a 4% increment p.a. [[3]]
  • NAV is raised by 2% to US\$10.9 due to lower net debt and a reduced number of shares outstanding at the end of 2025F. [[3]]
  • The target price is increased to US\$4.91 (55% discount to NAV, unchanged). [[3]]
  • The Hold rating is reiterated due to the continued decline in office rents in Hong Kong, which hinders its re-rating in the next 12 months. [[3]]

Key Risks and Opportunities

  • Upside risks: increase in IP occupancies and faster cash collection from development property (DP) asset winddown. [[3]]-[[4]]
  • Downside risks: negative rental reversions in IP and further impairment provisions. [[4]]

Peer Comparison and Market Data

HOLD (no change)

  • Consensus ratings*: Buy 8 Hold 5 Sell 0
  • Current price: US\$4.64
  • Target price: US\$4.91
  • Previous target: US\$4.82
  • Up/downside: 5.8%
  • CGSI / Consensus: -1.4%
  • ADR: HNGKY US US\$21.60 TP: US\$22.86
  • Reuters: HKLD.SI
  • Bloomberg: HKL SP
  • Market cap: US\$10,239m
  • Average daily turnover: US\$12.70m
  • Current shares o/s: 2,207m
  • Free float: 46.7%

*Source: Bloomberg

Key Financial Metrics and Forecasts

  • FY25F/26F/27F EPS increased by 2%/3%/3%.
  • Price performance:
    • 1M Absolute (%): 6.9
    • 3M Absolute (%): 8.7
    • 12M Absolute (%): 48.7
    • 1M Relative (%): 10.9
    • 3M Relative (%): 7.6
    • 12M Relative (%): 22.7
  • Major shareholders % held: Jardine Matheson (JM SP) 53.3

Analyst Information

  • Will CHU, CFA
    • T (852) 2539 1327
    • E will.chu@cgsi.com
  • Raymond CHENG, CFA
    • T (852) 2539 1324
    • E raymond.cheng@cgsi.com
  • Steven MAK
    • T (852) 2539 1328
    • E steven.mak@cgsi.com

Financial Summary

(US\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F
Total Net Revenues 1,844 2,002 1,778 1,652 2,161
Operating EBITDA (522) (1,210) 722 704 761
Net Profit (582) (1,385) 668 682 697
Core EPS (US\$) 0.33 0.19 0.31 0.31 0.32
Core EPS Growth (3.8%) (44.0%) 64.4% 3.1% 2.2%
FD Core P/E (x) 14.01 25.00 15.20 14.74 14.42
DPS (US\$) 0.22 0.23 0.24 0.25 0.26
Dividend Yield 4.74% 4.96% 5.17% 5.39% 5.60%
EV/EBITDA (x) 8.04 9.09 5.55 3.62 1.72
P/FCFE (x) 19.79 26.53 8.38 6.91 7.39
Net Gearing 16.8% 17.0% 13.6% 9.5% 6.0%
P/BV (x) 0.32 0.34 0.33 0.32 0.31
ROE 2.25% 1.32% 2.21% 2.19% 2.18%
% Change In Core EPS Estimates 2.02% 2.65% 3.03%
EPS/Consensus EPS (x) 1.03 0.98 0.89

Transaction Summary

Properties to be transacted 42nd to 50th floor (9 floors)
Selected retail space on Levels 1 and 2
SFA (sf) 147,025
Passing rent of relevant properties HK\$184m
Gross sales proceeds HK\$6.3bn (US\$810m)
Capex for renovation HK\$0.4bn
Net sales proceeds HK\$5.9bn
Expected completion c.45% of gross sales proceeds in 2025F, c.55% in 2026F
ASP based on gross proceeds (HK\$/sf) 42,850
ASP based on net proceeds (HK\$/sf) 40,129
Transaction yield (based on net sales proceeds) 3.12%
Use of net proceeds (1) c.80% for reduction of net debt or new investment
(2) c.20% for share buyback, as part of the new US\$200m
share buyback programme that extends to 31 Dec 2025

Comparable Office Transactions in HK Central

Transaction Date Address Leasable Floor Area (sf) Consideration (HK\$ m) ASP (HK\$/sf)
14 May 2024 29/F, 9 Queen’s Road Central 13,769 310 22,514
30 May 2024 High Floor at The Center 26,234 729 27,800
29 Aug 2024 75/F, The Center 24,121 646 26,800
29 Aug 2024 66/F, The Center 26,967 700 25,958
08 Oct 2024 17/F, Grand Building 3,700 67 18,027
11 Nov 2024 Units at 27/F, The Center 5,062 104 20,500
12 Nov 2024 Unit at 23/F, World Wide House 1,394 28 20,287
03 Jan 2025 Units at 23/F, 9 Queen’s Road Central 7,806 145 18,575
23 Apr 2025 Units at Mid Floors, Silver Fortune Plaza 1,699 20 12,001
Average ASP of The Centre, 9 Queen’s Central and World Wide House 23,205

NAV Breakdown (end-2025F)

US\$ m US\$/share % GAV
HK Office 11,433 5.3 38.5%
HK Retail 2,336 1.1 7.9%
HK Other IP + Hotel 33 0.0 0.1%
China IP + Hotel 5,495 2.5 18.5%
China DP 5,133 2.4 17.3%
ASEAN IP 3,978 1.8 13.4%
ASEAN DP 1,264 0.6 4.3%
GAV 29,672 13.7 100.0%
Less: net debt (6,059) (2.8)
NAV 23,613 10.9

IP = investment properties; DP = development properties

Net debt inclusive of net debt from JVs and associates

Earnings Revisions

2025F 2026F 2027F
Old New % chg Old New % chg Old New % chg
Core net profit 660 668 1% 677 682 1% 689 697 1%
EPS (US\$) 0.30 0.31 2% 0.31 0.31 3% 0.31 0.32 3%
DPS (US\$) 0.24 0.24 0% 0.25 0.25 0% 0.26 0.26 0%

Summary of NAV and TP Change

Old New Chg
NAV (US\$) 10.70 10.90 2%
Target discount 55% 55% 0% pt
TP (US\$) 4.82 4.91 2%

HK Property Valuation Summary

Short Name Ticker (HK\$) CP (HK\$) TP (HK\$) Rating Mkt cap (US\$ m) NAV/sh (HK\$) Disc. to NAV (%) Upside (%) P/E (x) 2024 P/E (x) 2025F P/E (x) 2026F Div yield (%) 2024 Div yield (%) 2025F Div yield (%) 2026F Net Gearing (%) 2024 Net Gearing (%) 2025F Net Gearing (%) 2026F
CK Asset 1113 HK 31.55 38.70 ADD 14,232 85.9 63 23 8.6 7.7 7.4 0.28 0.28 0.27 5.5 5.6 5.9
HLD 12 HK 21.55 27.00 ADD 13,447 49.0 56 25 10.7 11.6 11.5 0.32 0.32 0.32 8.4 8.4 8.4
Kerry Prop 683 HK 17.58 25.00 ADD 3,288 55.5 68 42 9.9 8.2 7.4 0.25 0.24 0.24 7.7 7.7 7.7
NWD 17 HK 4.80 5.31 HOLD 1,557 35.4 86 11 NA NA NA 0.07 0.07 0.07 4.2 0.0 0.0
SHKP 16 HK 72.35 100.20 ADD 27,022 167.0 57 38 9.6 9.7 9.7 0.35 0.34 0.33 5.2 5.2 5.2
Sino 83 HK 7.82 8.95 ADD 9,223 17.9 56 14 13.8 13.5 11.8 0.41 0.43 0.43 7.4 7.4 7.5
Wharf Holdings 4 HK 19.04 20.70 HOLD 7,500 46.1 59 9 20.8 16.2 14.2 0.43 0.42 0.41 2.1 2.1 2.1
HLP 101 HK 6.26 7.20 ADD 3,860 24.0 74 15 9.7 8.9 8.8 0.23 0.24 0.24 8.3 8.3 8.3
HKL* HKL SP 4.64 4.91 HOLD 10,239 10.9 57 6 25.0 15.3 15.0 0.34 0.33 0.32 5.0 5.2 5.4
Hysan 14 HK 12.48 14.20 HOLD 1,652 47.3 74 14 10.0 8.4 8.2 0.17 0.17 0.17 8.7 8.7 8.7
Swire Prop 1972 HK 16.50 17.50 HOLD 12,274 38.8 57 6 14.1 13.8 10.9 0.35 0.34 0.34 6.7 6.9 7.2
Wharf REIC 1997 HK 18.30 27.90 ADD 7,161 55.8 67 52 9.1 9.0 8.7 0.30 0.29 0.29 6.8 6.9 7.1
Champion REIT 2778 HK 2.13 1.52 REDUCE 1,669 4.94 57 (29) 13.5 13.8 13.1 0.30 0.29 0.29 6.7 6.5 6.8
Link REIT 823 HK 35.70 46.10 ADD 11,882 67.9 47 29 NA 13.4 13.1 0.51 0.51 0.51 7.4 7.5 7.7
Midland 1200 HK 0.99 1.50 ADD 91 NA NA 52 2.2 2.1 2.1 0.71 0.54 0.44 0.0 4.7 4.8
Developers Average 64 23 12.2 11.2 10.3 0.30 0.30 0.30 5.8 5.2 5.3
Landlords & REITs Average 62 13 13.6 11.8 11.1 0.31 0.31 0.31 7.1 7.1 7.3
Simple average (ex. Midland) 63 18 12.9 11.5 10.7 0.31 0.31 0.30 6.4 6.2 6.3

Share price data as of 25 Apr 2025; * HKL data stated in US\$

ESG Highlights

  • HKL has aligned its sustainability strategy with the United Nations Sustainable Development Goals (UNSDGs). [[4]]
  • It received an ESG combined score of C+ from LSEG in 2023. [[4]]
  • In 2023, HKL’s HERE2HELP volunteering team achieved over 17,000 hours of volunteer services and served more than 70,000 people in need. [[4]]
  • Its aggregate facility amount for its sustainability-linked loans stood at US\$2.2bn as at end-2023, unchanged from end-2022. [[4]]
  • It also achieved 29% reductions in Scopes 1 and 2 greenhouse gas (GHG) emissions in 2023, compared to 2019 baseline. [[4]]
  • HKL has developed sustainability action plans and targets including:
    • Reducing its energy consumption and carbon emissions of its HK Central portfolio by 37% and 55%, respectively, by 2030 (base year: 2008). [[4]]-[[5]]
    • Recycling 25% of the waste generated by its existing properties by 2030 (base year: 2008). [[5]]
    • Developing health and well-being policy for employees. [[5]]
    • Disclosing employee diversity metrics. [[5]]

Key Financial Charts and Data

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(US\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F
Total Net Revenues 1,844 2,002 1,778 1,652 2,161
Gross Profit 931 737 857 841 901
Operating EBITDA (522) (1,210) 722 704 761
Depreciation And Amortisation 0 0 0 0 0
Operating EBIT (522) (1,210) 722 704 761
Financial Income/(Expense) (184) (166) (151) (126) (92)
Pretax Income/(Loss) from Assoc. 235 115 232 234 231
Non-Operating Income/(Expense) 0 0 0 0 0
Profit Before Tax (pre-EI) 845 533 803 812 900
Pre-tax Profit (472) (1,262) 803 812 900
Taxation (107) (121) (117) (110) (151)
Profit After Tax (579) (1,382) 686 701 748
Minority Interests (3) (3) (18) (19) (52)
Pref. & Special Div 0 0 0 0 0
Net Profit (582) (1,385) 668 682 697
Recurring Net Profit 734 410 668 682 697
Fully Diluted Recurring Net Profit 734 410 668 682 697
Normalised Net Profit 737 412 686 701 748
Fully Diluted Normalised Profit 734 410 668 682 697

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(US\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F
EBITDA (522) (1,210) 722 704 761
Cash Flow from Invt. & Assoc.
Change In Working Capital 279 291 966 1,009 1,289
Straight Line Adjustment
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow 1,437 1,918 115 121 127
Net Interest (Paid)/Received (205) (181) (151) (126) (92)
Tax Paid (287) (147) (118) (112) (139)
Cashflow From Operations 702 671 1,534 1,595 1,946
Capex (85) (79) (200) (200) (200)
Disposals Of FAs/subsidiaries
Disposals of Investment Properties
Acq. Of Subsidiaries/investments
Other Investing Cashflow 355 160 228 309 (1

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