RHB Research 2015-07-06: Ho Bee Land - Strong Balance Sheet, Substantial Exposure in Sentosa. Maintain BUY.

  • Prices of residential units in Sentosa Cove had plunged sharply in the last few years but transactions are now picking up as buyers stepped up their buying amid a sense that prices have bottomed out. 
  • At The Oceanfront, two condominium units were sold in the $2000 psf range in April, a price not seen since October 2012 where a unit was sold at $2,190 psf. One of the two units was a 2,788 sq ft four-bedder which sold for $5.73m ($2,055 psf) while the other unit was a $1,765 sq ft three-bedder which sold at $3.45m ($1,954 psf). 
  • Other projects in the enclave, from Seascape to The Coast and Turquoise, had also seen a pickup in transactions with done deals ranging from $1400-1600 psf. 
  • We think the play on Sentosa properties is still ultimately about the scarcity story, with a limited stock of some 2000 plus units. The biggest player there is Ho Bee Land (HOBEE SP), which clinched eight sites on the island since 2003 and have since sold most of the projects there, raking in $800m of profits which were recycled to acquire investment properties in Singapore and London. 
  • Its remaining exposure in Sentosa is still substantial: we estimate its portfolio of completed units in Turquoise, Seascape and Cape Royale to be worth some $700-800m. 
  • Most of these units are currently rented out as management awaits a turn in the residential cycle. 
  • Meanwhile, the group has a strong balance sheet with net gearing at a modest 0.3x, and enjoys a stream of recurring income from its investment properties that puts the company in good stead even as the residential market remains uncertain in the near term. 
  • We maintain our BUY rating on the stock and $2.60 TP, which is premised on a 35% discount to our RNAV of $4.01. 

(Goh Han Peng)

Source: http://www.rhbgroup.com/