Monday 16 October 2023

Hong Kong Land Limited Dividend Yield of 6.43% and around 75% Discount to NAV- Why I am Staying Away From It.

I was watching Master Leong You-Tube channel yesterday and Hong Kong Land ("HKL") was being mentioned due to its high dividend yield (around 6.43%) and a close to 75% discount to its NAV where the latter provides a relatively super high margin of safety for those who are going to invest in it. HKL is not a "stranger" to me as during the COVID crisis, I have purchased around 4,000 units then in late 2019 at around US$5.50 per share and then sold it a month later at around the same price to re-deploy the funds due to my bad feel on the development then in light of the Hong Kong protests. To cut it short, HKL market prices has plummeted -50% from US$7+ per share in early 2019, to the current US$3.42 per share as at 15 October 2023- note that this is also after the massive US$600Mil share-buy back programme executed by the management team. Hence this is not exactly a good investment after almost 5 long years.  

1. Most of HKL investment properties and projects in HK and China while the remaining in Singapore


Most of HKL's investments properties are in offices or mixed development with some retail components. I am not exactly a fan of office space investments due to their cyclical nature. Before COVID, I have been staying away from offices and focusing more on retail and industrial REITs. However, during COVID crisis, I have thought that the office REITs especially those in US were holding up their prices and distribution well and thus ventured into them since they have long tenure with tenants. This forage into the office space sector subsequently turned out to be a disaster as one of the notorious one (Manulife US REIT) breached its banking covenants and stopped its distributions totally and is in the midst of divesting properties during the trough of the current US commercial office crisis.

2. The super high margin of safety has been talked about for ages by bloggers/You-tubers since more than 5 years back.
The market pricing for HKL has been lacklustre for donkey years. In early 2019, its price hovered at US$7 before dropping to US$5. 50 towards the end of that year. Most folks were all talking about the remarkable margin of safety offered by HKL net assets value per share. Look at its current market pricing of US$3.42 per share. Add in the US$600Mil of share-buy back programme since September 2021 and one can see that its share price is perpetually stuck in limbo.

3. Future of Hong Kong and Property Development in China
The key risk faced by HKL would be its property development businesses in China/HK and the political policy uncertainties in Hong Kong. In light of Evergrande and Country Garden, it is not a surprise that the market is frowning down upon the real estate sector and unduly punishing HKL. 

The market also does not seemed to view favourably businesses with property development in them which has high risks and also staggered unstable earnings. Even in Singapore, other property developers like City Development also suffered from a significant discount to its NAV per share. 

Parting Thoughts
Personally, I thought that with the worldwide stock markets in doldrum, there are a lot of alternative buying opportunities out there that can offer a good distribution yield and also high discount to NAV. So I will probably give HKL a miss for now. 

No comments:

Post a Comment