Broker's take: CGS-CIMB raises target price for Hongkong Land on companies returning to offices

CGS-CIMB is raising the target price for Hongkong Land to US$6.30 from US$5.48 and maintained an "add" call on expectations of companies returning to offices in the city.

In a note on Tuesday (Nov 2), the brokerage noted that office rents in key business districts on Hong Kong Island fell 5 to 13 per cent year on year in Sep 2021. But leasing demand has improved as companies seized the opportunity to consolidate their workplace.

"As Central office rents are back at pre-financial crisis levels of 2007, we think the level is attractive enough for corporations which left Central to return, leading to office 'recentralisation'. This new trend should benefit large office landlords in Central, such as Hongkong Land, in our view," said CGS-CIMB analyst Raymond Cheng.

The landlord and developer's Central office vacancy was 6.4 per cent at the end of H1 2021, below the 7.4 per cent for the overall Central offices. The analyst noted that while negative rental reversions may continue to the end of 2021, the lower rents make Hongkong Land's portfolio attractive for retaining or acquiring key tenants.

According to Cheng, vacancy has peaked at the end of H1 2021 and will moderate in Q4 2021 and H1 2022, with the Hong Kong government planning to reopen borders with mainland China.

Meanwhile, Hongkong Land's share price has risen 30 per cent since the announcement of a US$500 million share repurchase programme on Sep 6. It has repurchased 17.9 million shares for US$90 million as at Nov 1, comprising some 18 per cent of its share repurchase budget. Cheng estimated that the landlord could use up its buyback budget by Q2 or Q3 of next year.

Shares of Hongkong Land were up 1.3 per cent or US$0.07 at US$5.59 as at 11.42 am on Wednesday (Nov 3).