Interim dividend +10.5% YoY despite net profit declined by 12%
As Henderson Land heads into the fifth consecutive year of raising dividends,generous dividend remained the key theme for its 1H16 results. Despite a 12%drop in core profit from HK$5.4bn to HK$4.8bn, interim dividend declared wasstill increased by 10.5% to HK$0.42/shr from HK$0.38/shr for 1H15. WhileFY16 earnings are expected to decline on lower completions in Hong Kong,HLD emphasized that the continuous dividend increase was underpinned bymanagement’s positive outlook in the medium-term development. Meanwhile,we expect to see faster progress in realizing farmland value with two key datesin mind – 1) first land exchange to be completed by end-2016 and 2) landresumption to start in 2017 by latest.
Land premium of farmland conversion will be finalized by end-2016
HLD has a vast 45.2mn sf farmland reserve in the New Territories. For the sitesthat are to be developed as residential projects and are applying for landexchange, it expected that the first two sites will have the land price finalizedand land exchange process completed by the end of 2016. In addition, it alsoexpected that the government will start land resumption in 2017 by latest. Torecall, government has listed HK$1,112psf compensation for farmlandresumption and more additional compensation for select sites. As HLD has2mn sf site subject for resumption, this should bring at least HK$2.2bn windfallgain to HLD on our conservative estimate as early as next year.
Hong Kong sales margin maintained at 30%, a decent level in our view
HLD recorded HK$3.7bn revenue from Hong Kong property sales in 1H16,down by 10% YoY due to fewer completions (completions in 1H16 include onlyGrandview and High One). HLD still achieved 30% margin in 1H16, which weregard as decent (1H15: 30%). For China property sales, due to its destockingexercise in 1H16, HLD booked a slight loss of HK$5mn at its subsidiary leveland only 4% operating margin on an attributable basis (1H15: 11%). Inaddition, HLD also made HK$150mn provision mainly relating to its car parkinventory in China and projects in Anshan, Shenyang and Yixing.
Stagnant Hong Kong rentals on the retail front
Including contribution from associates, HLD recorded HK$3.2bn gross rentalincome from Hong Kong in 1H16, which was up by 1.4% YoY. The increasemainly came from IFC as the IFC portion grew by 3.8% YoY to HK$0.95bn andex-IFC portion grew by 0.4% YoY to HK$2.26bn. Excluding IFC, HLD statedthat office rent grew by less than 5% YoY while the retail rent had beenstagnant. The lower rental growth was also due to major renovation works thatwere carried out in five of its suburban malls. China rentals performed steadilywith a 5.7% YoY growth in RMB terms but with a -0.2% decline in HKD (1H16:HK$856mn vs. 1H15: HK$858mn).