Hong Fok Corp Ltd - CIMB Research 2017-11-03: Yotel Orchard - A New Earnings Driver

Hong Fok Corp Ltd - CIMB Research 2017-11-03: Yotel Orchard - A New Earnings Driver HONG FOK CORPORATION LTD H30.SI

Hong Fok Corp Ltd - Yotel Orchard - A New Earnings Driver

  • Hong Fok Corporation - A property investor and developer with S$2.8bn of investment and development properties.
  • Opening of Yotel Orchard in Oct as the first Yotel-branded hotel in Asia.
  • Low net debt to equity of 0.47x.
  • Revalued NAV stands at S$2.55/share.

A property investor and developer in Singapore and Hong Kong 

  • Hong Fok Corporation (Hong Fok) is primarily involved in property investment, property development and construction and property management activities in Singapore and Hong Kong. 
  • In FY16, it generated 81% of its revenue from property investment, 16% from property development and the remaining 3% largely from property management activities.

Rental income base supported by a S$2.5bn portfolio 

  • Hong Fok’s rental income base is underpinned by a S$2.5bn investment property portfolio. Its major properties include the 647,605 sq ft GFA The Concourse office/retail property, the 610-room Yotel Orchard Hotel as well as the 161,062 sq ft GFA International Building office building.

Yotel Orchard is the first Yotel property in Asia 

  • The Yotel Orchard was opened on 1 Oct 17 and is Yotel’s first Asian property. Yotel operates a chain of microhotels globally. The Yotel Orchard features 610 state-of-the-art cabins that integrate elements of luxury hotels into smartly-designed spaces.

Low carrying cost for residential properties 

  • Hong Fok’s residential portfolio comprises 118 apartments at the Concourse Skyline and 2 units at the Jewel of Balmoral. As at end-FY16, these properties had a total carrying cost of S$245.2m (c.S$1,264psf of GFA). 
  • Based on URA data, resale transactions for Concourse Skyline during Jul-Oct 17 were S$1,500-2,000psf while the Jewel of Balmoral was done at S$1,400-1,450psf in 2Q17. At these levels, we expect Hong Fok to generate a positive return when these units are sold at current market prices.

RNAV of S$2.55/share 

  • Hong Fok’s net-debt-to-equity ratio stood at 0.47x as at end-2QFY17 after factoring in revaluation surplus from its investment properties. 
  • Consensus RNAV of S$2.55/share is at a 15% premium over its 1HFY17 book value of S$2.22 and includes the implied development surplus from its residential property projects. 
  • Hong Fok is currently trading at 0.41x P/BV and at a 65% discount to RNAV.

Target Price: N/A

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-11-03
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