Henderson Land's 1H14 underlying net profit surges 46% to HK$5.03b

It trumped market and analyst expectations.

Henderson Land’s interim results beat both Barclays' and market expectations, since its 1H14 underlying net profit rose 46% y/y to HK$5,030mn and was 13% above our HK$4,438mn estimate.

According to a research note from Barclays, positively, Henderson Land raised its interim DPS by 6% to HK$0.34. At a recent briefing, management shed more light on the potential time frame for farmland conversion.

Although Henderson Land’s estimated mid-2015 time frame is in line with Barclays expectations, it is believed that the market was hoping for an earlier window considering that the company's shares have risen 13% over the past three months.

Here's more from Barclays:

Non-property items drove most of the earnings beat. While headline net profit and DPS beat our expectations, delving more deeply into the results, there were mixed operational performance.

At the property level, net rentals surprised positively (accounting for HK$262mn of the variance) but lower than expected China development profits resulted in a HK$109mn shortfall.

In fact, of the HK$592mn positive variance, non-operational items like lower net finance costs and other income contributed to HK$439mn of the positive variance (see below for details).

Farmland conversion and land resumption more likely a mid-2015 event. At today’s briefing, management shed more light on the potential time frame for farmland conversion.

With the land premium arbitration paper still subject to market feedback and processing, the actual timing may be around the middle of 2015.

On the land resumption side, as land surrender will likely be tied to the related farmland conversion, this may also be slated for the middle of 2015.

Although the farmland conversion process continues to move in the right direction, we believe the mid-2015 timing discussed today may be further out than what the market had hoped for especially considering that Henderson Land’s share price had risen by 13% over the past three months (vs. the HSI up 9.2% over the same period).