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2 Reasons Why Hongkong Land Holdings Limited Is A Bargain Right Now

The Motley Fool logo The Motley Fool 12/26/2018 Lawrence Nga

Hongkong Land Holdings Limited‘s (SGX: H78) share price has fallen by 13.4% from a 52-week high of US$7.44 to US$6.44 currently. In this article, I want to share two reasons why I think the company is a bargain right now.

The business

Hongkong Land’s main business is in the ownership of commercial properties in Hong Kong and Singapore. It has investment properties in other parts of Asia too, and is also active in developing high-end residential properties in China, Singapore and elsewhere.

Reason 1: Stable business track record

When looking for investment opportunities in the stock market, one of the most important traits we should seek in a company is an ability to sustain or grow its profits in the years ahead. To assess this, we can look at the company's track record – preferably for at least five years – for clues. The idea is simple: A company that has a proven track record has a higher probability of sustaining its profitability in the future.

Hongkong Land has a positive track record. From 2013 to 2017, its net profit surged from US$1.19 billion to US$5.59 billion. Non-trading items such as property revaluations played a huge role in the profit growth, but its underlying earnings per share – after stripping away non-trading items – also grew from US$0.397 to US$0.412 over the same period. Moreover, Hongkong Land's book value per share had increased by 37%, or 8.2% per year, from US$11.40 in 2013 to US$15.60 in 2017; the book value per share is an important metric to monitor for a property company such as Hongkong Land, since a significant source of value creation lies with the appreciation of its underlying properties.

All said, Hongkong Land has demonstrated that it has stable earnings power and has grown its book value over the long run.

Reason 2: Stable dividends

Another key criteria we as investors should look at is a company’s track record in paying dividends. We should look for stable or growing dividends over the years.

Hongkong Land ticks the right box here. From 2013 to 2017, it has raised its dividend from US$0.18 per share to US$0.20 per share. The table below also makes it clear that the company’s dividend had been stable for the aforementioned period.

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Source: S&P Global Market Intelligence

Assuming that the company maintains its 2017 dividend in 2018, Hongkong Land’s share price of US$6.44 currently will give investors a dividend yield of 3.1%.

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