Ho Bee Land - Maybank Kim Eng 2016-08-15: 2Q profit spike on Australia sales

Ho Bee Land (HOBEE SP) - Maybank Kim Eng 2016-08-15: 2Q profit spike on Australia sales HO BEE LAND LIMITED H13.SI

Ho Bee Land (HOBEE SP) - 2Q profit spike on Australia sales


Maintain HOLD and SGD2.28 TP; Prefer CapitaLand 

  • 2Q16 offered little surprise as we expected sales to markedly improve from the recognition of profits from its development projects in Australia. Erosion to its property income in GBP will be mitigated by borrowings in the similar currency. 
  • While uncertainties in the London office market may weigh on near term market sentiment, management reiterates its confidence in the long term fundamentals of the city. 
  • Our TP has already adopted a conservative valuation of its UK properties with a discount of 30%. Maintain HOLD with unchanged SGD2.28 RNAV-based TP.


Australia sales recognised 

  • Sales rose over four-fold on the recognition of development projects in Melbourne and Gold Coast, Australia. Rental income fell sequentially as weaker GBP weighed on translated earnings to SGD. The negative impact was cushioned by lower interest expense. 
  • Associate income improved on recognition of profits from its joint venture project in Shanghai. Its net gearing improved slightly to 49% from 55% at the end of 2015 due to higher cash balance from sales proceeds from completion of the development projects.


UK office weakness buffered by matching liabilities 

  • The group’s UK office exposure to the weaker GBP is mitigated by its borrowings in the similar currency. 
  • While Brexit could weigh on the near term outlook of UK’s office sector, management reiterates its confidence in the long term fundamentals of London and flags that the long lease tenure of its properties will provide support.


Investment thesis 

  • We maintain HOLD rating as there are no clear catalysts despite cheap valuations. It is under no time pressure to sell its Sentosa projects as they are not subjected to Qualifying Certificate deadline. 
  • Nonetheless, poor home sales sentiments implies it is unable to extract capital deployed into these projects. 
  • We continue to prefer CapitaLand (CAPL SP, BUY, SGD3.93) for exposure to the Singapore Property sector.




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-15
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.280 Same 2.280


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