Henderson Land’s 1H15 earnings rose 5% y/y to HK$5,291mn.
According to a research note from Barclays, though, the positive surprise was the 12% uplift in 1H DPS to HK$0.38.
At a recent briefing, management commented that the dividend uplift reflects its optimism for full-year earnings growth while it continues to target a payout ratio of 30-40%.
Higher interim DPS reflects full-year optimism: Henderson Land reported underlying net profit of HK$5,291mn, which was largely in line with our HK$5,248mn estimate.
Development profit was slightly lower than forecast, but this was made up by higher gains from equity disposals and lower head office expenses. The surprise came in the form of a 12% uplift in the interim DPS to HK$0.38. Per management, the higher dividend reflects its optimism around future operations.
Test case on farmland conversion around the corner: On its long-awaited farmland conversion, Henderson Land had submitted a smaller site as a test case and expects the first arbitration judgment potentially in November. If this process works well, it may then proceed with the larger sites for potential conversion.
Raising earnings estimates but cutting NAV by 1.4%: We raise our earnings estimates by 4% for 2015, 4% for 2016 and 5% for 2017 to reflect our now lower assumptions for head office expenses and tax rates. For 2015, we also included a one-off gain of HK$230mn.
However, we cut our forward NAV estimate by 1.4% to reflect our latest USDCNY forecast. Thus, as we keep our target discount unchanged at 40%, we lower our price target by 1.4% to HK$48.00.
Key upside/downside risks include: 1) larger scale farmland conversion; 2) an earlier-than-expected interest rate hike; and 3) more regulation on old building redevelopment.