Ho Bee Land - CGS-CIMB Research 2018-08-23: Steady Ship

HO BEE LAND LIMITED SGX:H13

Ho Bee Land - Steady Ship

Boosting recurrent income base through the purchase of Ropemaker Place in UK.
Low Singapore inventory; well positioned to tap new landbank opportunities.
Extended Australian development pipeline with Wollert acquisition; China on track.
Maintain ADD with a higher Target Price of S$3.00.

We update HoBee’s model to incorporate its latest acquisitions in the UK and Europe as well as adjust for China development profit recognition and S$28.3m fair value surplus from the revaluation of its 999-year leasehold petrol station site in Singapore, announced during 2Q18 results. Accordingly, our RNAV rises to S$4.99.
Our new Target Price of S$3.00 is pegged to a 40% discount to RNAV.

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HoBee acquired the 602,000 sqft Ropemaker Place in London in Jun 18 for S$1.16bn (£650m). The building is less than 200m away from the London Crossrail Moorgate Station, generates £30.57m of annual rental income and has an average lease-to-expiry of 10.5 years. With this, HoBee’s investment property portfolio rose to S$4.3bn (56% in UK).
We estimate rental revenue could surge from FY17’s S$147m to c.S$213m by FY19F (c.85-90% of estimated topline), providing a steady and recurrent income base.

In addition, the group has committed to co-invest up to €40m in the CS Real Estate SIVAC-SIF I – Credit Suisse (Lux) European Property Fund II as well as subscribe for up to €50m of notes in Clouse S.A. Funds. The capital will be invested in a commercial property in Munich which we understand has redevelopment potential.
No details have been provided as yet and we have not included potential value creation from these investments into our current RNAV estimate.

Singapore residential forms a small 8% of HoBee’s RNAV as it has not replenished its landbank in recent years. As land and residential price momentum takes a breather following the recent property cooling measures, HoBee will be well positioned to tap new landbanking opportunities.
Meanwhile, HoBee’s remaining unsold inventory in Sentosa is c.85% leased out, generating some cashflow. We estimate end-FY17 carrying value of its inventory was c.S$1,400-1,900psf, in line with secondary market transactions in the area.

With the Pearl in Melbourne fully sold and Rhapsody in Gold Coast 85% taken up, HoBee has replenished its Australian development pipeline through the purchase of a 49% stake in a 16ha site in Wollert, Melbourne. The land parcel is slated to be developed into 285 landlots and phase 1 is currently being marketed. We estimate this project could boost RNAV by $0.01, when fully sold.

In China, progressive completion of its 3 JV projects in Shanghai (85% sold), Zhuhai (P1&2 85% sold) and Tangshan (P1 99% sold) should continue to filter into 2H18 earnings. Latter phases of the Tangshan and Zhuhai projects are currently being progressively developed and are expected to be completed over the next 2 years.

We raise FY18-20F EPS to reflect higher near-term China contribution, revaluation gain from the petrol station land and smaller share base due to buybacks. With high recurrent income portion and estimated recurrent free cashflow of c.S$60m-70m p.a., we think HoBee can continue its special dividends (FY17: 8 Scts final; 2 Scts special) even with a higher net debt-to-equity of 77% as at 2Q18.
HoBee remains one of our top picks given its high income visibility.
Key risk is forex volatility and impact of Brexit on asset values.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-23

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