6 revelations from Hang Lung Properties results

Rental income jumped 11%.

According to Nomura, Hang Lung Properties kicked off the HK property companies’ reporting season with a slightly better-than-expected set of results.

Helped by non-core asset disposals, HLP’s underlying net profit nearly doubled from HKD3,116mn HKD6,178mn. More important, also reflecting an 11% increase in rental income, HLP raised its DPS for the first time since June 2010.

Here's more from Nomura:

Its full-year DPS of HKD0.74 was 3% ahead of consensus (HKD0.715) and in line with our expectations. Other positives from the results include an acceleration of its BVPS growth at 4.1% in the 2H (Vs. 1.5% in 1H).

Overall, while HLP’s results are not a home run, most of the key aspects did just come in slightly better than expected.

1. First dividend uplift since June 2010 – HLP raised its final dividend from HKD0.54 to HKD0.57. This brought full-year DPS to HKD0.74 and marks the first full-year DPS uplift since June 2010. HLP’s dividend policy remains one of steady and gradual growth.

2. Ignore choppy gains from development and asset sales – For FY12, HLP reported development profit of HKD846mn and gains from non-core asset sales of HKD2,148mn.

While this helped to boost HLP’s underlying net profit from HKD3,116mn to HKD6,178mn, given the lumpy nature of these gains, we believe it is better to focus on HLP’s recurrent rental income.

3. Focus on underlying recurrent rental income – 3% ahead – HLP’s gross and net rental income increased by 10.5% and 10.7% y-y to HKD6,098mn and HKD4,896mn, respectively. At the net rental level, this was 3% ahead of our estimates. Split between China and HK, HLP’s net rental rose by 4.4% and 18.3% y-y with the China:HK ratio now at 48:52.

4. Re-acceleration of BVPS growth – Over 2H2012, HLP’s BVPS rose by 4.1% h-h from HKD25.30 to HKD26.34. Compared to the last three reporting periods, when h-h BVPS growth was only between 1.5-2.7%, this re-acceleration of BVPS is a positive, in our view, as it helps to mitigate the persistent valuation issue of HLP’s high PB ratio versus its peers (now at 1.11x versus peers at 0.91x).

5. Net cash position back to HKD6.3bn – Helped by cash returned from non-core asset sales, HLP’s net cash position improved from HKD1.6bn in June 2012 to HKD6.3bn as of December 2012. In the next five years, HLP’s expects total capex of HKD30bn or roughly HKD6bn p.a.

6. New projects on track – Overall, all projects under construction are on track without any major change in the schedule. With the shopping mall opened in September 2012, the office tower I of Forum 66 will be open in 2014.

The next project to watch is Center 66 in Wuxi with its shopping mall set to open in 2013. Almost 80% space are committed or under negotiation.