Fri Nov 15 07:59:12 UTC 2024: ## Hongkong Land Holdings Aims for Long-Term Growth Through Asset Management Pivot
**Hongkong Land Holdings (H78)** is undergoing a major shift in strategy, moving away from development properties and focusing on ultra-premium integrated commercial assets for recurring rental income. This move, according to Morningstar equity analyst Xavier Lee, is “positive” for the long term.
Lee maintains a “three-star” rating on the company, acknowledging the potential benefits of this strategy. Hongkong Land’s goal is to grow its assets under management (AUM) to US$100 billion by 2035 with the help of third-party capital. This, Lee predicts, will generate a steady management fee income stream and help the company double its profit before interest and tax, as well as dividends, by 2035.
However, the transition won’t be without its challenges. Lee anticipates “volatile” near-term earnings as Hongkong Land balances the exit of its development property business, the sale of investment properties, and the growth of its fund and REIT management platform.
He emphasizes the importance of successful execution, noting that some peers have struggled to transition to a real estate management model. Despite this, Lee is mildly optimistic about Hongkong Land’s execution capabilities, citing CEO Michael Smith’s experience in investment banking and REIT listings, as well as his proven track record at Mapletree Investment.
Hongkong Land will focus on Hong Kong, Shanghai, and Singapore, while exploring opportunities in premium gateway cities like Tokyo and Sydney. Competition is expected to be more intense in these new markets due to less constrained land supply.
The company plans to fund its expansion through capital recycling, including unlocking US$6 billion from its development property business and US$4 billion from selected investment properties. Lee predicts that the first phase of this recycling will focus on clearing residential inventory in the build-to-sell business.
Lee has kept his forecasts mostly unchanged but has increased his dividend per share (DPS) forecast for FY2024 to 23 US cents from 22 US cents, aligning with Hongkong Land’s management guidance.
Despite the positive long-term outlook, Lee believes that investors should wait for a “better entry price” due to the execution risk. His current fair value estimate represents a downside of 18.7% from Hongkong Land’s last-closed share price of US$4.75 on Nov 7.
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