Hongkong Land’s Share Price is Incredibly Cheap Now. Here’s Why

Hongkong Land Holdings Limited (SGX: H78), better known as “HK Land”, operates in the property sector. It is mainly involved in the property development, investment, and management businesses, which are spread across Hong Kong, Mainland China, and Southeast Asia.

In the last 12 months, HK Land’s stock price has plunged by 36% from its 52-week high of US$7.47. The drawn-out anti-government protests in Hong Kong, as well as the recent Covid-19 outbreak, are just some of the main reasons behind the decline.

These issues will have negative impacts on HK Land’s business operations, with no clear timeline of when they will start subsiding. Yet, these challenges have pushed the company’s stock price to a severe bargain level now.

Here are two ways I think long-term investors should look at the company.

Historical metrics

One way to look at HK Land’s valuation is to compare its current valuation metric to historical data. Let’s consider a simple metric – price-to-book (PB) ratio, which is a metric most relevant to it given the nature of its business.

In the last decade, HK Land’s shares have traded at PB multiples of roughly between 0.4x to 1.0x. Presently, it has a PB ratio of 0.29x, which is even lower than the lowest end of the spectrum. On that factor alone, HK Land might be a good target now for longer-term investors!

Peer benchmarking

Another way we can look at this is to compare HK Land to its listed peers. Let’s take CapitaLand Limited (SGX: C31) and City Developments Limited (SGX: C09), both Singapore-listed property developers, for our comparison.

Again, I’ll look at the PB ratio of both companies. CapitaLand and City Developments are currently trading at PB ratios of 0.73 and 0.76, respectively. With a PB ratio of 0.29, HK Land is trading at a more than 50% discount to both of its peers.

On the one hand, it makes sense for HK Land to trade at a lower valuation than its peers given all its challenges. Yet, I would ask if a discount of more than 50% is a reasonable valuation for the company?

Foolish conclusion

In all, HK Land is trading at an extremely low valuation due to reasons that I have mentioned above. Yet for investors seeking out value, this might be a good stock to research further.