Target Price S$1.86
What’s New
- Ho Bee Investment’s (Ho Bee) share price has jumped 29% in last three months, outperforming the FSSTI (+11%) and Bloomberg property developer index (+15%). We see more upside ahead with pick-up in office leases and improved sales activity in its high-end project acting as key catalysts.
Stock Impact
- Leasing interest in The Metropolis picking up. Ho Bee’s upcoming office site The Metropolis (net lettable area (NLA) of 1m sf) is seeing good interest in leasing activities with Ho Bee said to have secured its maiden tenant Fitness First to lease around 12,600sqft in Tower 2. Ho Bee is also said to be in advanced stage discussions with Oil Giant Shell (100,000 sf) and NOL (100,000-130,000 sf) according to media sources. We understand that the rental expectations are in the S$5-7psf/month range. Construction works are progressing well and are on track for completion by 2H13. We expect further pick-up in leasing with the recent opening of the mega mall The Star Vista (Sep 12) nearby providing added amenities. When fully operational, we expect The Metropolis to contribute additional S$30m-50m to Ho Bee’s bottom line.
- Sentosa sites exempted from extension charges. The Residential Property Act stipulates that developers (who have obtained Qualifying Certificate), and have at least one foreign shareholder must complete the construction of the site in five years and sell units within two years of Temporary Occupation Permit (TOP). Failure to comply will result in forfeiture of 10% of the banker’s guarantee or payment of an extension premium (8%, 16% and 24% of the land cost pro-rated on proportion of unsold units for
next three years respectively). The act however exempts projects in Sentosa Cove to attract foreign investments. Thus Ho Bee’s bulk of unsold inventory (>90% of unsold) will not be impacted by this ruling. The only project that is likely to see an impact is The Orange Grove (83% sold, 12 units left and has until Dec 12 to complete sales). We estimate that the worst-case impact is a minimal S$12m, or about 6% of its 2011 net profits.
- Share buybacks are a signal of deep value. Management has been actively buying back shares over the last two years with management buying back about 37.3m shares (or about 5% of the shares outstanding) in the price range of S$0.98-1.43/share.The recent share buybacks (in July) were done in the price range of S$1.20-1.22/share.
- Investment activity in high-end segment picking up. Interest in the high-end segment is showing signs of pick-up with recent new launches seeing good response from buyers. The recent launches include Leedon Residence (40 units sold at S$2,000psf), V on Shenton (144 units sold at S$2,050psf) and TwentyOne Angullia Park (five units sold at S$3,950- 4,338psf). Ho Bee’s high-end units also saw increased activity in 2Q12 with 10 units sold compared to just one during the previous quarter. Although sales activity has slowed down in Sentosa Cove, we believe the lack of new supply will hold up the prices. The recent resale transaction at S$2,730psf in Seascape project indicates that prices are fairly steady.
- Healthy headroom levels to weather any potential slowdown. Ho Bee’s net gearing remains low at 0.26x, providing sufficient balance sheet strength to hold on to its assets. The gearing is expected to further come down with an unbilled sales recognition of about S$150m from its projects. Assuming a comfortable gearing of 0.5x, Ho Bee has additional debt headroom of about S$400m to capitalise on acquisition opportunities in Singapore and China.
- Trading at attractive valuations of 0.6x P/B. Despite the stock’s 41% rise ytd, Ho Bee is trading at a low P/B of 0.6x, a steep 33% discount to its long-term mean P/B of 0.9x. Should the stock will revert back to its long-term P/B, this will result in a potential 50% upside. We believe that the market is pricing in an over 40% fall in Ho Bee's assets at current share price levels, which is unjustified.
Earnings Revision/Risk
- We increase our 2014 forecast by 19% to factor in earnings contributions from The Metropolis office space. Our FY12-13F earnings are 12-13% ahead of consensus.
Valuation/Recommendation
- Maintain BUY, unchanged target price of S$1.86/share, pegged at a 30% discount to our RNAV of S$2.67/share. Ho Bee is currently trading at a steep discount of 46% compared with its peers which are trading at a discount of 30-35%.
No comments:
Post a Comment