Henderson Land reported in-line results from operations plus asizable disposal gain. On the asset monetization front, managementmaintained the active pace, having already secured two majordisposals YTD, with more to come. On land banking, the companysaid progress on farm land conversion would likely take a pause andresources be diverted to other avenues of land banking. KeepNeutral.
Henderson Land reported in-line results from operations
Underlying profit for FY2017 at HK$19.6bn, n up 38%. If weexclude one-off disposal gains of HK$7.5bn （versus HK$4.5bn inour model）， recurring underlying profit would be up 18% atHK$12.1bn, in line with our forecast of HK$12.0bn.
Full year DPS at HK$1.71, up 10% yoy （excl. 1-for-10 bonusissue）。
BVPS at HK$73.26, up 11% yoy.
Key takeaway from analyst briefing
Fast pace of asset monetization to continue ahead:
2017: HK$7.5bn disposal gains represent contributionsfrom two hotels in HK, various shops/car parks/ industrialunits in HK, and mixed-use project and land sites in China.
2018: The company said disposals of 18 King Wah Roadand Tuen Mun Town Land Lot No. 500 have alreadycompleted, and that it will recognize c.HK$9bn in disposalgains in upcoming results. Management see ongoingopportunities to dispose of non-core projects amidstill-strong investment demand.
Farm land conversion
Two plots were converted in 2H2017, namely a site in Fanling o North （610k sq ftGFA at HK$4,152 per sq ft GFA land premium）and a site in Kwu Tung North（271k sq ft GFA at HK$3,644 per sq ft GFA land premium）。
However, for the 3 other plots with a total of 3.4mn sq ft GFA in Fanling North,management see limited update at the moment, and further progress wouldlikely only be made by 2020E the earliest. We do not expect much progresson this front before the settlement of the recommendations by thegovernment’s Task Force on Long Term Land Supply.
Land banking
At 19% net gearing, management see room to fund further land banking, butthere was no plan on the execution of farm land conversion in the near term.
We note they bought two land sites in the Kai Tak area earlier in Feb, whileselling out a development site in Tuen Mun as a trade to improve their landbank quality.
On old buildings assembly, while their average acquisition cost rose toc.HK$8,200 per sq ft GFA, management explained that was partly driven byincreased exposure to Hong Kong Island, where they grew 100%-ownedprojects by 72% yoy to 0.8mn sq f GFA （total projects with 100% ownershipat 2.3mn sq ft GFA, up 30% yoy）。
Valuation remains relatively unattractive versus peers, keep Neutral
We have revised our 2018/19E EPS by +68/-3% post-results, partly to factor in c.HK$9bndisposal gains in 1H2018E, and introduce 2020E. While there is a lack of property salescontributions in 2018E, we expect the newly-completed disposal gains to more thanoffset the former. Our new 12-month price target of HK$54.0 （up from HK$53.4） isbased on an unchanged 30% discount to 2018E NAV of HK$73.16. The stock trades at a32% discount to NAV, vs its 5-year average/-1SD of 32/39%. We remain Neutral-rated.
Risks: Upside risks: Faster-than-expected property sales or farmland conversions.
Downside risks: Unexpected change in government housing policies or an abrupteconomic downturn.