20180824-高盛-恒基地产-00012.HK-1H2018_results_review__In_line_with_expectations__earnings_to_depend_on_disposals_8页_428kb

Henderson Land (0012.HK) 1H2018 Results Summary

Core Content

Henderson Land (0012.HK) reported its 1H2018 results, which were in line with expectations. The company's underlying profit reached HK$13.9bn, representing a 52% year-over-year increase. However, this was largely driven by the HK$8.4bn gain from the sale of en bloc projects, specifically the 18 King Wah Road office and Tuen Mun Town Lot No. 500 site. Excluding this gain, the underlying profit from ongoing operations was HK$5.5bn.

The company also noted that the accounting change affecting revenue recognition led to a restatement of 1H17 results, which further impacted the comparison. On the recurring income side, attributable rental income increased by 7% to HK$3.5bn, and share of net profit at HKCG also rose by 7% to HK$2.0bn.

Book value per share (BVPS) was HK$68.7/share, with a net debt to equity ratio of 23% (or approximately 20% if adjusted for proceeds from announced disposals).

Main Points

• Earnings Drivers: Earnings are increasingly influenced by en bloc project disposals, as development sales in Hong Kong remain slow.
• Recurring Income Growth: Rental and related revenue grew by 7.8% to HK$2.995bn, with a 13.9% increase in China.
• Dividend: The interim dividend per share (DPS) was HK$0.50, a 4% increase year-over-year, or 14% when including the 1-for-10 bonus issue, which was slightly below the forecast of HK$0.52.
• Investment Opportunities: Management highlighted potential for ongoing disposals of non-core projects, although visibility on timing and scale remains low.
• Farmland Conversion: The company holds approximately 45 million square feet of farmland, which could be converted into residential land, though this is not expected in the near term.
• Valuation Metrics:
  • P/E ratio increased from 6.1 in 12/17 to 8.7 in 12/18E, and further to 12.6 in 12/19E.
  • P/B ratio remained stable at 0.6 across all periods.
  • FCF yield improved from -9.0% in 12/17 to 11.7% in 12/18E, but declined again in subsequent years.
  • EV/EBITDA decreased from 27.3 in 12/17 to 22.4 in 12/20E.
• EPS Forecast: The company revised up its 2018/19/20E EPS by 1‰, 12%, and 2% respectively, mainly due to the sale of No. 8 Observatory Road.
• Investment Banking Relationships: Goldman Sachs has investment banking relationships with Henderson Land and may trade its securities as a principal.
• M&A Rank: Henderson Land is ranked 3 in M&A potential, indicating low probability of being an acquisition target.
• GS Factor Profile: The company's Growth, Financial Returns, and Multiple are all calculated based on normalized ranks, with the Integrated percentile being the average of Growth, Financial Returns, and (100% - Multiple).
• Ratings Distribution: As of July 1, 2018, Goldman Sachs had a rating distribution of 35% Buy, 53% Hold, and 12% Sell across its global equity coverage.

Key Information

• Price: HK$40.80
• 12-Month Price Target: HK$42.00
• Upside: 2.9%
• Market Cap: HK$155.7bn / $19.8bn
• Enterprise Value: HK$195.5bn / $24.9bn
• 3-Month Average Daily Trading Volume (ADTV): HK$148.7mn / $18.9mn
• Dividend Yield: Increased from 3.7% in 12/17 to 4.9% in 12/20E
• Net Debt/Equity: Decreased from 17.8% in 12/17 to 11.0% in 12/18E, then slightly increased to 13.0% in 12/20E
• Interest Cover: Decreased from 10.6 in 12/17 to 6.7 in 12/18E, but increased to 8.8 in 12/20E
• ROE: Declined from 10.9% in 12/17 to 3.9% in 12/18E, then slightly increased to 4.0% in 12/20E
• CROCI: Decreased from 11.0% in 12/17 to 6.8% in 12/18E, and further to 3.7% in 12/19E
• Days Inventory Outstanding: Decreased from 1,110.9 in 12/17 to 919.4 in 12/19E
• Days Payable Outstanding: Increased from 195.5 in 12/17 to 248.7 in 12/20E

Analyst View

• The analyst remains Sell on Henderson Land, with a 12-month price target of HK$42.
• The company's performance is expected to be driven by recurring earnings unless there are further major disposals.
• The analyst highlights the potential for farmland conversions and asset monetization as upside risks that could lead to higher earnings.
• There is a risk that if the share price continues to weaken, significant shareholders may increase their stake in the company.
• The company's recurring income growth is at a high-single-digit level, but slower than the effective DPS growth of 14%.

Summary

Henderson Land's 1H2018 results were in line with expectations, driven primarily by the sale of en bloc projects and the restatement of previous results. Recurring income showed modest growth, and the company has a relatively high dividend yield. The analyst maintains a Sell rating, citing the reliance on asset disposals and the limited visibility on future earnings. The company's farmland holdings present potential upside, and the possibility of significant shareholder intervention if the stock weakens further. The company's valuation metrics show a mixed picture, with some improvements in FCF yield and a decline in ROE. The analyst believes the company's earnings will depend heavily on the success of its disposals and farmland conversion efforts.