Why Henderson Land's latest stake increase isn't of much help

It was just a modest spree.

According to Barclays, over the past 2-3 months, the prospect of policy easing has narrowed its discount to NAV. Trading at a 44% discount to spot NAV and 0.64x 2013 P/B, HLD's valuation has now returned to within one standard deviation of its historical norm.

Here's more from Barclays: 

Although investor sentiment towards the Hong Kong housing market has improved recently, we remain concerned about housing affordability, the risk of rising rates, and continued increase in housing supply.

Netting off the effects of HLD's recent 1-for-10 bonus share issue and latest landbank data, we lower our NAV-based price target from HK$46.70 to HK$44.70. With potential downside of 4%, we downgrade HLD from OW to EW. Within the Hong Kong property sector, our top picks are Cheung Kong and HLP (both rated OW).

Valuation now back to one standard deviation of historical average: Post HLD's Q2 share price rally (+13% vs HSI +5%), it is currently trading at a 44% discount to NAV and 0.64x trailing P/B. Compared to its long run average, both discount to NAV and P/B are now back within 1SD of the historical norm, which we do not see as attractive.

Potential presale and farmland catalysts more likely near end of 2014: As Double Cove Ph 3 is likely to be launched near the end of 2014, we believe HLD's main way to benefit from the recent volume pick up would be via leftover sale or single block launches. On farmland conversion, although HLD's 42.5mn sf of farmland should be a long run beneficiary of development in the New Territories, we believe actual conversion/resumption is likely to be slated for 2015 rather than 2014.

Stake increases have helped, but Mr. Lee last bought in May: Between 21 March and 9 May, the HLD Chairman Mr. Lee bought 25.4mn shares in the company at an average price of HK$39.99 (adjusted for 1-for-10 bonus shares). Compared to the HK$7.3bn he spent between March and July 2013, this round of stake increase is more modest.

Valuation and key risks: Reflecting a 4% cut in our end-2015E NAV due to the bonus share issue and latest landbank data, we lower our price target for HLD by 4% to HK$44.70 (unchanged valuation methodology). Key upside/downside risks include: 1) larger scale farmland conversion; and 2) an earlier-than-expected interest rate hike.