Ho Bee Land (HOBEE SP) - Maybank Kim Eng 2018-04-27: Diversifies Into Germany

Ho Bee Land (HOBEE SP) - Maybank Kim Eng 2018-04-27: Diversifies Into Germany HO BEE LAND LIMITED H13.SI

Ho Bee Land (HOBEE SP) - Diversifies Into Germany


1Q18 net profit in line; Maintain BUY 

  • Ho Bee's 1Q18 net profit was in line with our and consensus estimates. The decline in profit was due to a high-base effect from the one-off sale of Rose Court in 1Q17. 
  • Ho Bee sold a small redevelopment site on the Gold Coast and invested into a European property fund, which gives it exposure to a commercial development in Germany. 
  • We refresh our model and fine-tune our estimates to incorporate the latest data points. Our Target Price is raised by 5% to SGD3.30, based on an unchanged 30% discount to revised RNAV of SGD4.73. 
  • While the earnings outlook is not exciting, the steep 47% RNAV discount is amongst the largest in the sector. Maintain BUY. 



Results inline; Sold Gold Coast site for a small profit 

  • Ho Bee Land's 1Q18 net profit fell 12% y-o-y to SGD49.4m. The decline was mainly due to higher base from a SGD7.4m one-off gain from the sale of Rose Court in 1Q17. 
  • In 1Q18, Ho Bee sold a small development site at Ferny Avenue on the Gold Coast for AUD5.5m, at a premium to its acquisition cost of AUD2.9m in late-2012. Apart from the land parcel sold, Ho Bee has another undeveloped site on the Gold Coast that was acquired for AUD20m in Nov 2012. 
  • Its JV project in Shanghai continues to materially contribute to earnings, generating SGD28.5m in the quarter. 


Investing into a European property fund 

  • Ho Bee has committed EUR40m into a property fund (Credit Suisse (Lux) European Property Fund II) and another EUR50m into a Munich commercial development. The property will be redeveloped into a 500k sf Grade A office building. 
  • We built this investment into our model, but did not factor in profit contributions as no further details on the deal structure and return profile have been provided. 


Sentosa re-launch a potential catalyst 

  • With strengthening sentiment for high-end properties, Ho Bee will look to re-launch its 453 unsold units across various projects worth SGD2b on Sentosa. 
  • While we agree that sales should pick up in the year ahead, we believe sales volume should remain constrained due to the large price tags for the apartments. Units in these projects are typically priced above SGD4m. 


Swing Factors 


Upside 

  • Privatisation offer by major shareholder who already owns over 70% of the company. 
  • Strong rebound in luxury home market in Sentosa. 
  • Profitable sale of investment properties. 

Downside 

  • Sharp fall in value of office properties in UK and Singapore. 
  • Overpaying for development land. 
  • Poor execution of overseas projects. 





Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-04-27
SGX Stock Analyst Report BUY Maintain BUY 3.30 Up 3.150



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