Ho Bee Land - CIMB Research 2016-08-15: Australia shines

Ho Bee Land - CIMB Research 2016-08-15: Australia shines HO BEE LAND LIMITED H13.SI

Ho Bee Land - Australia shines

  • 2Q16 core net profit was ahead, making up 44% of our FY16 forecast. 1H16 core net profit was above expectations, at 64% of our full-year forecast.
  • Earnings outperformance was led by Australian development contributions.
  • Steady recurrent income base from Singapore and UK portfolio.
  • Maintains a selective landbanking stance.
  • Retain Add call with slightly lower RNAV-based target price of S$2.78.

Good showing in 2Q16 

  • 2Q16 net profit more than doubled yoy to S$42m (US$31m) as a result of the quadrupling of revenue to S$175.5m (US$130m), thanks to residential development contributions from Australia and higher rental income from acquisitions of new properties in the UK. This more than offset the impact of weaker £ and A$. 
  • There were also higher associate contributions from its 40% stake in the jointly-held project in Shanghai.

Australian contributions underpinned development income 

  • Contributions from two Australian projects – Pearl in Melbourne and Rhapsody in Gold Coast – completed during the quarter, accounted for the bulk of development revenue.
  • These projects were around 70% to above 80% sold at end-2Q16 and further sales contribution should continue to be recognised when more units are taken up. 
  • The group has one remaining land parcel measuring 11,342 sq m in Gold Coast, which should be developed in the medium term and generate another source of development income.

Strong recurrent income source 

  • In spite of the weaker £, rental revenue rose 19% yoy to S$36.4m (US$27m) in 2Q16 thanks to the inclusion of three investment properties in the UK that were purchased in 2015. This brings the total number of investment properties owned at end-2Q16 to seven, valued at S$2.87bn (US$2.12bn). 
  • The Metropolis is 100% occupied and the UK properties come with long leases. This will provide the group with a visible and recurrent income base.

Selective landbanking strategy 

  • Given the challenging Singapore residential market, Ho Bee is expected to remain highly selective on landbanking opportunities within its current geographical footprint of Singapore, the UK and Australia. 
  • Although it has unsold inventory in Singapore, these are largely leased and not subject to any developers’ penalties.

Maintain Add 

  • We tweak FY16-18F EPS by -9.8% to 1.6% for lower £ exchange rate and latest residential billings schedule. Our RNAV is reduced to S$3.97 and target price is adjusted down to S$2.78 (30% discount to RNAV). Ho Bee’s strong recurrent income of c.S$150m p.a. should enable it to at least maintain final DPS of 5 Scts (yield of 2-3%).
  • Share buybacks have raised its major shareholder’s stake to 73.7%, increasing the possibility of privatisation given its deep discount to book value.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-08-15
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.78 Down 2.800