Ho Bee Land Limited - Phillip Securities 2016-11-11: Overseas residential sales and new London office acquisitions continue to drive earnings

HO BEE LAND LIMITED H13.SI

Ho Bee Land Limited - Overseas residential sales and new London office acquisitions continue to drive earnings

3Q16 revenue of S$49.3m, a 23% y-o-y increase, driven by sales recognition of two residential development projects in Melbourne and Gold Coast, Australia.
China residential projects in Shanghai and Zhuhai drove up profits from associates.
Little lease expiries for Metropolis (c.40% of computed GAV) over next 2 years and long weighted average lease expiries for London offices provide income visibility.

Ho Bee Land's (HBL's) two residential development projects Rhapsody in Gold Coast and Pearl in Melbourne were recently completed, and drove top line growth from development property income. We expect this revenue boost to taper off in the coming quarters as bulk of the revenue from these two projects has already been recognised.
HBL’s three London office acquisitions in 2HCY15 drove rental income up to S$108.6m, a 15.3% y-o-y increase. HBL’s London commercial properties portfolio take up c.28% of our computed Total Gross Asset Value (GAV), with these three properties making up half of that London portfolio. Whilst the weakening GBP post-BREXIT provides a concern for investors, we note that notwithstanding this uncontrollable factor, these three properties provide stable recurring income with long average lease expiry terms.

We expect buying sentiment in the Group’s two China projects to sustain.
HBL‘s two joint projects with Yanlord Land - Yanlord Western Gardens 仁恒西郊花园 in Shanghai, and Yanlord Marina Peninsula Gardens 仁恒滨海半岛花园 in Zhuhai, continue to attract healthy buying interest with rising average selling prices. Yanlord Marina Peninsular Gardens Phase 2 for instance, are currently selling at c.RMB35,000/sqm, a 119% increase over the RMB16,000/sqm at first launch in CY4Q14.
On the investment front, Shanghai and Zhuhai continue to register healthy capital inflow for real estate development with 9M16 investments hitting 74% and 90% of 2015 full year numbers for Shanghai and Zhuhai respectively.

In the absence of Australian development profits driving top line in the coming quarters, HBL can still count on its stable office portfolio in Singapore to derive recurring income. Metropolis in Buona Vista for instance, which takes up c.40% of our computed GAV , has little lease expiries over the next two years which would help the Group tide through the period with a glut of upcoming office space supply.

With little surprises in developments for HBL’s property portfolio, we maintain our ACCUMULATE call on Ho Bee Land with an unchanged RNAV-derived target price of S$2.20.
We continue to like HBL for its management’s acumen and vision, as well as stable portfolio of investment properties.

Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2016-11-11

Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 2.200 Same 2.200