For the benefit of those who had never of HK Land, they are one of the top 5 STI constituent in terms of market capitalization and a conglomerate which develops and manages commercial and residential properties across the globe - China, Singapore, Indonesia, Hongkong. Since they are a conglomerate with various businesses in many different countries, it is very difficult to value each of them accordingly, so I will be using a similar strategy to how I similarly did for Ho Bee recently.
In my last article (here), I've highlighted the main difference in the business model between Reits and developers. Obviously, we've seen very different fate in the market for Reits and developers over the recent years with many investors preferring Reits in their portfolio for income play. This has resulted in surged valuations from Reits which makes it a less compelling play than developers.
From a valuation stand point, I remain firm on my belief that they are an overlooked, unloved and compelling valuations that no one wants to touch. When they are unpopular, this is when I think they are worth a look.
I've tabulated the company's performance over the last 8 years and there are something which I am particularly looking out for.
In the table above, I have separated the company's earnings into the Total EPS (includes fair value change), Underlying EPS (exclude fair value change) and Recurring EPS (only rental income portion) and their relevant earnings yield. Since sales of their residential are more lumpy in nature, I am focusing more on their recurring income from their commercial properties. This is rather similar to how we have been trained to value Reits usually based on their recurring income.
If we take a look at the recurring income (green highlighted), which mainly focuses on the rental income and the recurring shares of profits from associates, we can see a positive uptrend in the last 8 years. The only time that it has seriously been jeopardized when it was in 2008 during the gfc when the economy was so bad. Back then, we also see an impairment being done to their properties for up to US$10m, but in all fairness it was minimal at best.
The company continues to trade at compelling valuations at price to book value of below 0.50x and an enticing dividend yield of around 3.2%. If this was structured like a Reit, then the company would be able to distribute dividends for as much as 6.4%, a very decent levered yield if you are considering the gearing they have (at 8%) compared to reits like CCT with dividend yield of 6.2% (gearing of 28%), FCOT with dividend yield of 7.2% (gearing of 38%) or Keppel Reit with dividend yield of 7.7% (gearing of 41%).
Most importantly, based on the company's recurring earnings yield, they would be more than comfortable to pay out the 19 cents dividends they have paid in the last 2 years.
The share price has recently weakened and I think for as long as their fundamentals remain solid as they are, it would be an easier decision for me to accumulate should the share price heads south.
Vested with 1,500 shares as of writing.