Ho Bee Land - CIMB Research 2015-12-09: Banking on recurrent income

Ho Bee Land - CIMB Research 2015-12-09: Banking on recurrent income HO BEE LAND LIMITED H13.SI 

Ho Bee Land - Banking on recurrent income 

  • More recurrent income profile provides a stable base. 
  • UK and Singapore investment properties form the bulk of GAV. 
  • Slow Singapore residential market. 
  • Australia residential activities to fill in slack from FY16 onwards. 
  • Maintain Add with unchanged target price of S$2.68. 

■ Building a recurring income base 

  • Ho Bee’s business model has evolved into a more recurring profile, with 70% of its GAV derived from investment properties. Of this, two thirds are derived from Singapore and the remaining from London office properties. This is in line with management’s long-term strategy to build up its recurring rental income, given the weakness in local residential markets. 
  • We expect resilient rental income to form the bulk of its FY15 earnings. 

■ Investment properties make up c.70% of GAV 

  • In addition to having the almost fully-occupied The Metropolis at Buona Vista in its stable, Ho Bee is one of the first movers in the London office property market. Since then, it has built up a portfolio of six office buildings in London totalling c.1m sq ft of NLA. 
  • In total, investment properties are valued at c.S$2.8bn as at Dec 15, of which cS$1.3bn is from UK. Some of these properties are currently under-rented, with medium-term upside potential when the leases are renewed. 

■ Slower Singapore residential activities 

  • Given the weak residential market in Singapore, management continues to rent out completed units in Sentosa and taking a cautious stance towards landbanking. 
  • To date, it has rented out > 50% of Cape Royale. With a gearing of 0.5x, it is well placed to tap new opportunities when they arise. 

■ Australian development contributions from FY16 

  • FY16-17 development earnings are projected to improve with the expected completion of the Australian residential projects, Pearl in Doncaster, Melbourne and Rhapsody in Surfers Paradise in early 2016. The Pearl is c.86% sold with an ASP of A$8,000/sq m, while Rhapsody is more than 70% taken up. These should produce healthy profit margins in the high teens given the low land costs. 

■ Maintain Add 

  • We maintain our Add call on Ho Bee with an unchanged RNAV-backed target price of S$2.68. 
  • Investment properties now account for c.70% of group GAV and the stable income provides a good buffer for earnings before contributions from completed overseas projects flow in from FY16 onwards. 
  • Potential catalysts are earnings delivery from overseas development projects and further earnings-accretive acquisitions.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.68 Same 2.68