COMPANY PROFILE Henderson Land Development Co Ltd

Transcription

1 A Progressive Digital Media business COMPANY PROFILE Henderson Land Development Co Ltd REFERENCE CODE: 26BDEAA3-CCA5-4EC4-83D F21CE69 PUBLICATION DATE: 30 May COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED

2 TABLE OF CONTENTS TABLE OF CONTENTS Company Overview...3 Key Facts Page 2

3 Company Overview Key Facts Company Overview COMPANY OVERVIEW Henderson Land Development Company Limited (Henderson) is property development company. The company involves in investment holding, property development and investment activities. Its portfolio of properties includes industrial buildings, residential properties, office buildings, shopping arcades and retail units. The company focuses on construction, investment and the management of hotels and department stores. Moreover, the company offers financial services, agency services, property rental, project management, property management, cleaning and security guard services. In addition, the company carries out the production and distribution of gas. The company through its subsidiaries operates and holds land bank in Hong Kong and China. Henderson is headquartered in Hong Kong. The company reported revenues of (Hong Kong Dollars) HKD24,453 million for the fiscal year ended December 2017 (FY2017), a decrease of 4.4% over FY2016. In FY2017, the company s operating margin was 56.8%, compared to an operating margin of 41.2% in FY2016. The net profit of the company was HKD30,433 million in FY2017, compared to a net profit of HKD21,916 million in FY2016. KEY FACTS Head Office Phone Fax Web Address 72-76/F, Two International Finance Centre 8 Finance Street HKG Revenue / turnover (HKD Mn) 25,568.0 Revenue (USD Mn) 3,281.3 Financial Year End December Employees 8,590 Hong Kong Stock Exchange Ticker 12 Page 3

4 SWOT ANALYSIS (Henderson) is an investment holding company. The company s strong liquidity position, business performance of property leasing segment, vertically integrated operations and land bank are the major strength, even as substantial debt remains a cause of concern. Rising labor costs in Hong Kong, highly competitive market and stringent regulations in China may impact the company s performance in the future. However, positive outlook for the Hong Kong construction industry, ongoing projects and strategic growth initiatives are likely to provide new growth opportunities to the company. Strength Liquidity Position Vertically Integrated Operations Land Bank Business Performance: Property Leasing Segment Opportunity Positive Outlook for the Hong Kong Construction Industry Ongoing Projects Strategic Growth Initiatives Weakness Substantial Debt Threat Highly Competitive Market Stringent Regulations in China Rising Labor Costs in Hong Kong Strength Liquidity Position A strong cash and liquidity position puts the company at an advantage when attempting to fund any potential market opportunities. Henderson's current ratio was 2.4 at the end of FY2017. It was also higher than its competitors SOCAM Development Limited and Yanlord Land Group Limited, which recorded respective current ratios of 1 and 1.6. A higher current ratio than competitors indicates that the company is in a relatively strong liquidity position. At the end of the review year, the company had total current assets of HKD121,726 million (an increase of 3.2% over the previous year), with cash in hand worth HKD27,006 million. Its total current liabilities stood at HKD49,998 million in FY2017. Its current portfolio of long-term debt or capital leases was HKD24,675 million in FY2017. Vertically Integrated Operations Henderson is an investment holding company with a focus on Hong Kong and Mainland China markets. The company is vertically integrated along the value chain, with operations including property development and investment supported by project management, construction, property management and financial services. The integrated nature of the company gives it a competitive advantage by allowing it to Page 4

5 manage higher quality standards while decreasing the operational costs to respond swiftly to scientific and popular reports. Moreover, the consumer buying trends to meet customer delivery schedules more effectively and to improve its overall operating margins. Land Bank A strong land bank ensures future revenues for the company. As of December 2017, the company had a land bank in various states in China, which includes Shanghai has 3.5 million square feet. (sq. ft.) of land bank followed by Guangzhou has 1.8 sq. ft.; Changsha has 6.2 sq. ft.; Chengdu has 3.6 sq. ft.: Dalian has 0.3 sq. ft.; Nanjing has 0.1 sq. ft.; Shenyang has 4.5 sq. ft.; Suzhou has 3 sq. ft.; Xian has 9.3 sq. ft.; Xuzhou has 0.6 sq. ft.; and Yixing has 2.6 sq. ft. In Hong Kong, it has 5.9 million sq. ft. of land bank in Kowloon and 2.4 million sq. ft. of land bank in Hong Kong Island. In addition, it has a land bank of 5.7 million sq. ft. in new territories. Business Performance: Property Leasing Segment The company s Property Leasing segment is the major contributor to its revenue stream. In FY2017, it accounted for 23.2% of the total revenue and reported a year-on-year growth of 2.1%. The improvement was driven by the increase in sales revenue from Hong Kong and China markets. During the year, the business also reported improvement in its cost efficiency, as reflected by its cost-to-income ratio, which improved to 43.2% in FY2017 from 58.8% in FY2016, causing expansion in its operating margin. The segment s operating profitability grew 1.3% to HSK4,287 million, which accounted for 41.3% of the total operating profitability. Weakness Substantial Debt Henderson has substantial debt, which may adversely affect its operations. The company reported total debt of HKD78,550 million during FY2017, representing an annual increase of 40.1%, as compared to its previous year s total debt of HKD56,084 million. The significant increase in debt limits its ability to obtain additional financing in future for working capital, and for other strategic initiatives. Opportunity Positive Outlook for the Hong Kong Construction Industry Henderson is likely to benefit from the positive outlook in the construction industry in Hong Kong. According to the in-house research, the construction industry in Hong Kong is estimated to grow at a CAGR of 1.54% during 2018 and 2022 (forecast period) and value HKD302.7 billion by The growth is expected to be driven by ongoing implementation of government flagship programs, including the Railway Development Strategy, Climate Action Plan 2030 and hospital development program. The residential construction market is expected to grow at a CAGR of 3.21% during the forecast period and reach HKD111 billion in It is estimated to be driven by the government s effort to fill the gap Page 5

6 between housing demand and supply; expansion of population, which creates a high demand for new residential units. The commercial construction industry is estimated to record a forecast-period CAGR of 4.01% and value HKD62.7 billion in This market is expected to be driven by increasing demand for Grade A office space from domestic and Chinese companies; and positive developments in retail and tourism sectors. While, the institutional construction market is forecasted to reach a value of HKD18.5 billion in 2022, growing at a CAGR of 2.16% during the forecast period. This market is expected to be driven by the government s initiatives to develop the quality of healthcare and education services. The country s expanding elderly population is expected to put pressure on existing resources. Ongoing Projects The company has 39 urban redevelopment projects comprising 3.8 million sq. ft. of gross floor area. The company s ongoing projects include 29A Lugard Road The Peak, Hong Kong; 18 King Wah Road North Point, Hong Kong; 218 Electric Road North Point, Hong Kong; 62C Robinson Road and 6 Seymour Terrace Mid-Levels; 73-73E Caine Road, Mid-Levels; Wood Road, Wanchai; 2 Tai Cheong Street, Sai Wan Ho; Shek Pai Wan Road, Aberdeen; and 4-6 Tin Wan Street, Aberdeen and 9-13 Sun Chun Street, Tai Hang. Strategic Growth Initiatives Henderson is taking various strategic initiatives to drive its growth. In June 2017, the company acquired a residential site for a cash consideration of HKD3.6 billion, which is located in So Kwun Wat, Tuen Mun. The company plans to develop the site into a high-end residential development, providing 1,900 housing units. The company has several acquisitions in pipeline, which comprise of 34 projects located in prime urban areas in Hong Kong. The total estimated gross floor area of these projects will be 2.1 million square feet upon the completion of redevelopment. These initiatives are expected to strengthen the company s operations and increase its returns. Threat Highly Competitive Market Competition is high among packaging providers irrespective of their scale of operation and end-use segments. Competition within the industry is generally on the basis of technological sophistication, customer service, and performance parameters. Henderson s key competitors include CapitaLand Limited, Chinney Investments Ltd, CK Hutchison Holdings Ltd, Great Eagle Holdings Limited, LT Commercial Real Estate Ltd, New World Development Co Ltd, Sino Land Co Ltd, SOCAM Development Ltd, Sun Hung Kai Properties Ltd, Yanlord Land Group Ltd and others. Initiatives taken by these companies could adversely affect the company s business operations. For instance, in May 2018, CK Hutchison formed strategic alliance with Xiaomi. In May 2018, New World Development awarded tender for commercial development in SKYCITY Group to invest HKD20 billion to create a commercial entertainment hub for Hong Kong and the Greater Bay Area SKYCITY. In May 2018, Sino Group and China Mobile Hong Kong Limited (CMHK) signed a strategic memorandum of understanding (MoU) to develop a pre-5g infrastructure across Sino Group s residential and commercial properties, using CMHK s Narrowband Internet of Things (NB-IoT) technology. In May 2018, Yanlord Land through its Page 6

7 subsidiary Yanlord Land (Nantong) Co., Ltd. acquired a 51% interest in Nantong Hechuang Real Estate Co., Ltd. Stringent Regulations in China Henderson is required to comply with the stringent regulations at the federal, state and local levels. Products which do not comply with legislation outlined by regulatory bodies may face a delay in reaching its customers. Furthermore, non-compliance with legislation may lead to penalties and legal proceedings, which may damage the image of the company. The company must comply with various regulations in China including the Ministry of Transportation, the National Development and Reform Commission, China Building Decoration Association, Contract Law of the PRC 1999, the Ministry of Environmental Protection, the State Administration of Work Safety and the Ministry of Housing and Urban-Rural Development. The companies must also comply with national and local health, safety and environmental regulations such as Regulations on the Administration of Work Safety of Construction Projects 2004, PRC Law on Prevention and Control of Occupational Diseases 2011, PRC Environmental Impact Assessments Law 2003 and Regulations on the Administration of Construction Project Environmental Protection The company must comply with local laws and regulations for PPP projects such as Circular on Attracting Foreign Investment through BOT Model 1995 and Measures for the Administration of Infrastructure and Public Utility Franchises The compliance or change in regulations may force the company to update its mining processes, in turn increasing the capital expenditure and impacting its financial position. Rising Labor Costs in Hong Kong The company which has its operations in Hong Kong may be affected by the increasing labor costs impacting its income levels. In May 2017, the Labor Government of Hong Kong increased the Statutory Minimum Wage (SMW) of labor from HKD32.5 per hour to HKD34.5 per hour. In addition, the monthly monetary cap on recording the total number of hours worked is also increased from HKD13,300 per month to HKD14,100 per month. Page 7

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