Ho Bee Land - Slowly improving

Ho Bee’s 2Q core net profit rose 43% yoy, largely due to higher rental income from The Metropolis. 1H’s core net profit was in line at 48% of our full-year forecast. Management’s strategy of focusing on building up recurring rental income, while awaiting recovery of Singapore’s residential market, remains unchanged. Overseas residential exposure remain opportunistic, but they are expected to contribute positively as Australian projects come on stream in FY16 to post respectable margins in the high-teens. We maintain our Add call and RNAV-based target price but tweak our FY15-17 core EPS as we adjust our completion recognitions. We like Ho Bee for its deep discount of 47% to RNAV and resilient office portfolio. Catalysts include earnings delivery from FY16 onwards from overseas projects and further accretive acquisitions.

Results up 43% yoy on higher rental income
Ho Bee’s 2Q core net profit was up 43% yoy, largely due to higher rental income from The Metropolis. This is in line with our forecast, with 2Q/1HFY15 core net profit at 23%/48% of our full-year forecast.

Outlook intact
Post the recent acquisition of two London Properties, 39 Victoria Street and 110 Park Street, Ho Bee will have a portfolio of ~S$2.6bn of investment properties. We expect rental income to be resilient and form the bulk of its 2015 earnings. Given the weak residential environment in Singapore, management continues its strategy of renting out completed units in Sentosa and taking a cautious approach towards land banking.

Looking ahead, we expect 2016-2017 earnings to improve with the expected completion of the Australian residential projects in Doncaster, Melbourne and Surfers Paradise in early-2016. These should book healthy profit margins in the high-teens given the low land costs.


Technical Analysis
Daily Chart
Maintain Add We maintain our Add rating for Ho Bee. We like its deep discount of 47% vs. peer average of 39%, and stable office portfolio (~70% of GAV). The recurring income offers a good buffer for earnings before contributions from completed overseas projects flow in from FY16 onwards. Potential catalysts are earnings delivery in FY16 from overseas projects and further accretive acquisitions. (Read Report)

Read Related Report
Ho Bee Land - Higher TP on RNAV Uplift
Monday, 10 August 2015
- Maybank Kim Eng Research

Source : CIMB Research

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