Lower home prices and policy support lead to faster acquisition progress
Current property market prices provide opportune timing for HLD to speed upproject acquisitions. Lower home prices soften property owners’ attitudes andcould reduce HLD’s acquisition cost. In tandem with the government’s targetof kick-starting new-town development soon, the execution of farmlandconversion becomes easier and faster. With the first example of a site at MaShi Po, we believe the market will assign a higher probability of NAVrealization. We reiterate Buy on HLD with a target price of HK$48.2.
Ma Shi Po site an example of successful farmland value realization
Henderson Land resumed the farmland conversion process for its Ma Shi Posite with a new development-area plan, which was promptly approved by theBuildings Department afterwards. This sets a precedent. It shows how quicklyfarmland conversion can be executed when there is policy support. Weestimate a boost to NAV of at least 10%, if 20% of HLD’s farmland isconverted and the company receives cash from the government’s siteresumption initiative.
Faster progress and cheaper cost of ownership compilation of old buildings
We observe that HLD has expedited the ownership compilation of old urbanbuildings along with a decline in home prices. This has been widely covered bythe media this year. Lower home prices help to lower HLD’s acquisition bidprices by at least 10%, according to news media.
Consistent dividend growth and additional disclosures are strong merits
HLD’s stable dividend growth track record is a strong merit. Accounting forbonus share, de facto dividend growth in 2012-2015 was 10-45% per year. Inaddition, given the confidentiality of private negotiations with existinghomeowners and with the government, it is often difficult for us to ascertainland prices and project progress for HLD. We note that the company hasprovided much better disclosures recently: it conglomerated several sites into amajor project and gave out land price and construction cost estimates.
Trading at 40% NAV discount, an attractive price for a reliable quality company
Henderson Land is trading at a 39% discount to our NAV estimate of HK$68.8,which we have already factored in with a home price decline as deep as 40%.We set our target price at a 30% discount to our NAV. Risks: externaleconomic shocks, liquidity outflow and sharper rate hikes.