Ho Bee Land - UOB Kay Hian 2017-04-26: 1Q17 Bumper Earnings Boosted By Associate Contributions

HO BEE LAND LIMITED H13.SI

Ho Bee Land - 1Q17: Bumper Earnings Boosted By Associate Contributions

Ho Bee Land (Ho Bee) reported top-line growth of 36.2% yoy in 1Q17, bolstered by sales recognition of two residential development projects in Melbourne and Gold Coast, Australia.

Net profit jumped 207.6% yoy to S$56.5m, on the back of 252% yoy increase in the share of profits from associates to S$32.7m mainly from their JV residential project in Shanghai and the divestment gain (S$7.4m) from the sale of Rose Court in Feb 2017 for GBP94.5m (carrying value GBP90m, acquisition price GBP67.2m).
Results are above our expectations with 1Q17 core net profit representing 52% of our full-year forecast.
We have raised our FY17 earnings by 26% mostly bringing forward recognition of the Shanghai project.
Net gearing declined to 0.37x in 1Q17 (4Q16: 0.44x) on the back of lower borrowings from the depreciation in the sterling and increased cash balances.
NAV increased to S$4.45 from S$4.39 in 4Q16.

Management sees continued challenges this year due to political and economic volatility. However, with The Metropolis at full occupancy and rental income from its commercial properties portfolio in London, management reckons that its substantial recurring income should help buffer the gloom.
Profit contributions have streamed in from its JV project in Shanghai and Zhuhai (S$32.7m in associate contributions in 1Q17), which should bolster earnings for 2017. Recall that Ho Bee, Yanlord and Shanghai Youyou acquired the Zhuhai site for Rmb3b in 2011.

The residential market remained weak in 1Q17, according to URA data. The overall price index extended its slump to 11.2% over 14 consecutive quarters from 3Q13’s peak. We expect the impact of multiple rounds of cooling measures, together with higher supply, to lead to a 15-20% correction in property prices from the peak.
Management continues to bank on recurring rental income from The Metropolis in Singapore, and its portfolio of London properties.

Maintain BUY and target price of S$2.82, pegged at a 25% discount to our RNAV of S$3.77/share.
Ho Bee is trading at a 39% discount to our RNAV.

Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-26

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.82 Down 3.020