DBS initiates 'buy' on Ho Bee Land with TP of $3.80

DBS Group Research analysts Dale Lai and Derek Tan have initiated “buy” on Ho Bee Land with a target price of $3.80.

The target price is based on a 40% discount to the brokerage’s revised net asset value (RNAV) of $6.28, write the analysts in a June 10 report.

“This represents [a] potential upside of 40%. The stock currently trades at price-to-net asset value (P/NAV) of 0.5 times and offers a yield of 4.0%, backed by stable cashflows from its office property portfolio,” they add.

Ho Bee Land has a portfolio that is positioned for the new economy with its seven prime office properties in London’s CBD. It also owns The Metropolis in Singapore’s One North.

The Metropolis, say the analysts, “will continue to see growth in the medium term. The asset is also a beneficiary of a pivot towards more suburban locations as companies adopt more flexible working arrangements,” write the analysts.

The group is doubling down its exposure in One North and is currently building a business park catering to the life-science and biotech sectors, which will contribute to earnings upon completion sometime in FY2023.

The group has been paying out an annual dividend of 10 cents per share over the past four years, translating to a dividend yield of 3.8% to 4.5% based on its average five-year trading price, comparable to that of the yields paid out by Singapore REITs (S-REITs).

On that, Lai and Tan note that the group’s higher dividend yield and faster net asset value (NAV) growth has been largely ignored by the market, compared to its closest developer peer, UOL.

“Compared to the FSTREH and UOL, Ho Bee Land trades at a lower P/NAV multiple of 0.5 times despite offering a higher dividend yield of 4.0% and faster growth in shareholder equity over the past decade,” they write.

“We see further upside from (i) impending recognition of development profits, (ii) completion of Biopolis development to drive upside to NAV and a re-rating in share price,” they add.

The group is also expected to recognise profits from its pivot towards amassing a significant recurring income base, which will provide a boost to its earnings from the FY2021 to the FY2023.

“Ho Bee Land has close to $1.3 billion of development projects on the books (22% of assets), of which a substantial portion has been sold (mainly in China and Australia),” say Lai and Tan.

“Riding on the positive sentiment in the Singapore residential space, the group has launched the remaining unsold units at Turquoise in Sentosa, bringing a near term boost to earnings,” they add.

The low interest rate environment and ample capital for deployment opportunities have put Ho Bee Land as a possible take-over target given its “dominant portfolio characteristics and attractive discount to NAV”.

On this, Lai and Tan have identified three possible catalysts for Ho Bee Land to unlock value.

“Recent share buybacks have brought Ho Bee Land’s free float down to 25% and possible scenarios are (i) privatisation, (ii) securitization of its income-producing portfolio or (iii) conversion into a “stapled security” presents upside of 35%-60,” write the analysts.

Shares in Ho Bee Land closed 28 cents higher or 10.5% up at $2.95 on June 10. The counter, on the same day, received a query from the SGX RegCo after its shares surged as high as 12% to $2.99.