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 [email protected]
- Raymond CHENG, CFA
- T (852) 2539 1324
- E [email protected]
- Steven MAK
- T (852) 2539 1328
- E [email protected]
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
| (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 |
2
3
| (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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