Ho Bee Land - CIMB Research 2016-05-03: Stronger 2Q expected

Ho Bee Land - CIMB Research 2016-05-03: Stronger 2Q expected HO BEE LAND LIMITED H13.SI 

Ho Bee Land - Stronger 2Q expected

  • 1QFY16 EPS forms 21% of our FY16 estimate, within expectations; strong uplift from new rental income.
  • Sizeable investment property portfolio of S$2.95bn generates c.5% annualised gross yield.
  • Australian development contributions to be felt from 2Q onwards.
  • Leasing Sentosa projects to generate cashflow while awaiting more favourable Singapore residential market conditions.
  • Maintain Add, with a slightly higher target price of S$2.80.

New acquisitions boost bottomline

  • Ho Bee reported a 19.3% yoy jump in revenue to S$37.7m, thanks to additional rental contributions from three investment properties purchased in London in 2015. 
  • Bottomline rose a stronger 60% yoy to S$18.5m on the back of a jump in associate contributions from its 40% stake in the Shanghai Qingpu project (JV with Yanlord). This was despite a doubling in interest expense from loans taken to fund the new property purchases.

Steady rental income from a S$2.95bn property portfolio

  • The group has seven investment properties – one in Singapore and six in London - worth a total S$2.95bn as at Mar 16. This enabled the group to generate rental income of c.S$37m for the quarter or an annualised gross yield of 5%. 
  • The Metropolis in Singapore is fully occupied while the London properties come with long leases and provide the group with a steady recurrent income base.

Australian residential contributions to be felt from 2Q onwards

  • We expect residential activities to boost 2Q16 profits. 
  • Two projects - in Melbourne and Gold Coast - are scheduled to be completed in Mar and Apr 16. The Rhapsody in Gold Coast, comprising 232 apartments, is 70% sold at an ASP of A$7,000psm while the 185- unit Pearl in Melbourne is 86% sold at A$8,000psm. 
  • Contributions from these projects are likely to be booked from 2Q16 onwards.

Generating returns while awaiting more favourable market cycle

  • Amid the challenging Singapore residential market, the group has leased its completed projects at Sentosa to generate cashflow. These projects are not subject to any developers’ penalties. Turquoise and Seascape are 80% leased while Cape Royale is 60% occupied. 
  • Our RNAV assumes ASP of S$1,500psf for the remaining unsold units at the group’s Sentosa projects. It is monitoring the market for new investment opportunities.

Maintain Add

  • We review our earnings estimates and update our RNAV to factor in the latest residential billings schedule. 
  • Our RNAV is lifted to S$4.01 and our target price rises to S$2.80, based on an unchanged 30% discount to RNAV. 
  • Ho Bee provides investors with strong recurrent income from its investment property portfolio. 
  • In addition, share buybacks by the company have increased its major shareholders’ stake to 73.7%, thus raising the possibility of privatisation given its deep discount to book value.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2016-05-03
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.80 Up 2.68