Ho Bee Land Limited - Phillip Securities 2016-06-27: Look past the short term volatility post BREXIT

Ho Bee Land Limited - Phillip Securities 2016-06-27: Look past the short term volatility post BREXIT HO BEE LAND LIMITED H13.SI 

Ho Bee Land Limited - Look past the short term volatility post BREXIT

  • Following the BREXIT vote last Friday which sent markets into a tailspin, Ho Bee Land fell 9c or c.4%, probably fuelled by concerns over the developer’s exposure in UK. 
  • Since Ho Bee’s re-entry into London in 2013, the Group now has six office properties in London, of which three were acquired last year. Close to 28% of our Revalued Net Asset Value (RNAV) for Ho Bee is made up of commercial buildings in UK.
  • Post BREXIT, GBP/SGD rates dropped to 1.85, a low since Ho Bee re-entered the London property market in May 2013. In the aftermath of the vote, the pound also fell to a 30 year low against the USD.



WHAT DO WE THINK

  • With c.S$1bn worth of debt denominated in GBP, versus our calculated RNAV of S$1.1bn for Ho Bee’s London Commercial Properties, the asset-liability match provides a natural hedge against a depreciating GBP. Rental income from the UK properties though is unhedged for currency exchange rate risks, and this income represents c.30% of FY15 revenue.
  • With c.30% of revenue for FY15 derived from UK rents, a 10% weakening of the GBP against the SGD would reduce earnings by c.3%. Nonetheless, London office leasing contracts are typically locked in for 10 years with a rental review on the fifth year. In this regard, office landlords such as Ho Bee have a long Weighted Average Lease Expiry with protected occupancy rates as a mitigating factor.
  • We adjust our FY16 NPAT downwards by 2.5% due to a weaker forecasted GBP/SGD conversion rate. Correspondingly, our RNAV per share declines 3% to S$3.67 (from S$3.79).


INVESTMENT ACTION

  • We maintain our ACCUMULATE call on Ho Bee Land with a reduced RNAV-derived target price of S$2.20 (from S$2.27).
  • We expect short term volatility and pressure in the share price due to the company’s UK exposure. Nonetheless we think investors should look past the short term pessimism and volatility and do dollar-cost averaging as prices take a hit in the short term. 
  • We continue to like Ho Bee for its track record and management’s success in creating shareholder value through successful ventures into London, Sentosa (Singapore), and suburban Grade A offices in Singapore over the years.




Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2016-06-27
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 2.20 down 2.27


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