On Friday, JPMorgan analyst Karl Chan upgraded Hongkong Land Holdings Ltd (HKL:SP) (OTC:HKHGF) stock from Neutral to Overweight, setting a higher price target of $4.90, up from the previous $4.50. The revision comes in the wake of the company’s recent strategic moves, including the sale of office floors in One Exchange Square at a capitalization rate of 3.1% which, according to the analyst, is value-accretive compared to the new financing cost of 4.5%. This transaction exemplifies the management’s capability to execute capital recycling effectively.
Chan also highlighted the positive impact of Hongkong Land’s share buyback program, which is described as consistent rather than opportunistic. Such initiatives have historically led to favorable responses in the company’s share price, with a 5% and 9% relative return within one week of announcement, as indicated by historical data.
Although the firm’s valuations may not appear particularly attractive with forecasted dividend yields of 5.7% and 6.0% for FY25E/26E, which are already at a premium over their peers, the analyst believes the premium is warranted. Hongkong Land’s unique position in the Hong Kong property market provides scarcity value, underpinned by three key factors: a high certainty of long-term dividends with commitment to mid-single-digit dividend per share growth until 2035, a committed buyback program, and an ambitious senior management team whose compensation aligns with share price performance.
The analyst also speculated on potential future capital recycling opportunities, such as the sale of MCL/The Ring or the creation of a Singapore Real Estate Investment Trust (S-REIT). However, these events are expected to take some time to materialize.
In summary, the upgrade by JPMorgan reflects a recognition of Hongkong Land’s strategic actions and its management’s execution capabilities, which are expected to continue adding value to the company and its shareholders.
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