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Stable outlook for Ho Bee Land, but returns likely to remain low

Michelle Zhu
Michelle Zhu2/28/2017 11:22 AM GMT+08  • 2 min read
Stable outlook for Ho Bee Land, but returns likely to remain low
SINGAPORE (Feb 28): Maybank Kim Eng is maintaining its “hold” call on Ho Bee Land despite raising its target price on the stock to $2.47 from $2.13 previously, after rolling forward valuations to FY16 and incorporating the property developer’s recen
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SINGAPORE (Feb 28): Maybank Kim Eng is maintaining its “hold” call on Ho Bee Land despite raising its target price on the stock to $2.47 from $2.13 previously, after rolling forward valuations to FY16 and incorporating the property developer’s recent sale of its property in London, Rose Court.

Ho Bee Land on Monday announced $216.8 million in earnings for FY16, 11% lower from $242.2 million in the previous year. This led to a dividend per share (DPS) cut by 1 cent to a final payout of 6 cents.

(See also: Ho Bee Land’s 4Q earnings fall 33.1% to $129.5 mil on lower fair value gain)

(See also: Ho Bee Land unit divests London property for $167 mil)

In a report on Tuesday, analyst Derrick Heng says he believes Brexit could present downside risks to the value of Ho Bee Land’s existing UK office property assets – and has hence built in a conservative 10% discount to their carrying value in his valuation of the stock.

“With a large recurring income stream from its portfolio of investment properties, we believe Ho Bee offers a relatively stable earnings outlook for investors,” says Heng.

“However, the lack of sales visibility for its unsold residential stock in Sentosa and Australia, and low earnings yield from the investment properties implies that returns on equity could stay low in the near term,” he adds, noting this is especially so as bumper profits from Australia in 2016 would mean limited development earnings visibility as well.

The research house has valued Ho Bee Land’s unsold units on Sentosa Island at a conservative $1,650 per sq ft, as well as The Metropolis at a conservative cap rate of 4%.

To factor in potential downside from Brexit, the group’s UK offices have been valued using conservative cap rates of 4.75-5.75%.

As at 10.45am, shares of Ho Bee Land are down by 1 cent at $2.29.

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