Ho Bee Land (HOBEE SP) - Maybank Kim Eng 2017-04-26: Decent Yield Play, Catalysts Lacking

Ho Bee Land (HOBEE SP) - Maybank Kim Eng 2017-04-26: Decent Yield Play; Catalysts Lacking HO BEE LAND LIMITED H13.SI

Ho Bee Land (HOBEE SP) - Decent Yield Play; Catalysts Lacking


Maintain HOLD and TP of SGD2.60 

  • 1Q17 net profit was slightly ahead of our expectation due to one-off gains and stronger JV income. 
  • The share price valuation is not excessive post the recent share price correction and investors should see the stock as a decent yield play. However, we struggle to see meaningful upside catalysts for the stock and retain our HOLD rating. 
  • Our TP is unchanged at SGD2.60, based on a 36% discount to RNAV of SGD4.07 in line with the discount rates across the sector. Prefer UOL (BUY, TP SGD7.93) for sector exposure. 
  • At almost 70% of Ho Bee’s valuation, we see the potential of a sharp decline in office prices in Singapore and the UK as the biggest downside risk to the stock.


Boosted by one-off gains and strong 

  • China earnings Operating profits were in line at 25% of our full-year estimates with the 26% improvement driven by profit recognition from its residential projects in Australia. 
  • Below the operating line, profits were boosted by one-off gains worth SGD7.8m from the sale of a UK office property, Rose Court, and other financial assets. Apart from that, stronger performance at its Shanghai project also drove a positive variance in the contributions from its JVs.


Yet to benefit from improving SG resi sentiment 

  • Ho Bee has yet to benefit from improving sentiment in Singapore’s residential market. There remains no sales visibility for its unsold stock on Sentosa Cove and management has adopted a leasing strategy for these properties as an interim measure. 
  • While it is not under any time pressure to offload these luxury homes, we opine that capital tied up in these properties will continue to weigh on ROE.


Weathering the storm with recurring income stream 

  • The company continues to enjoy good earnings support from the portfolio of commercial properties that it has built up over the years.
  • Nonetheless, while Singapore’s office market is showing signs of bottoming, potential ramifications from Brexit may present downside risks to its UK offices.


Swing Factors


Upside

  • Privatisation offer by major shareholder who already owns over 70% of the company.
  • Strong rebound in luxury home market in Sentosa.
  • Profitable sale of investment properties.

Downside

  • Sharp fall in value of office properties in UK and Singapore.
  • Overpaying for development land.
  • Poor execution of overseas projects.




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-04-26
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.600 Same 2.600



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