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Successful Sentosa relaunches is the best catalyst for deeply discounted Ho Bee

PC Lee
PC Lee • 3 min read
Successful Sentosa relaunches is the best catalyst for deeply discounted Ho Bee
SINGAPORE (Apr 30): Phillip Securities is staying positive with Ho Bee Land given the property group is planning to relaunch its Sentosa properties with a total 151 unsold units at the Turqoise and Seascape expected to be put on sale this year.
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SINGAPORE (Apr 30): Phillip Securities is staying positive with Ho Bee Land given the property group is planning to relaunch its Sentosa properties with a total 151 unsold units at the Turqoise and Seascape expected to be put on sale this year.

The research house notes there was an increase in secondary transacted volumes of Sentosa condos in 1Q18 of 17 units, the highest since 2012 although transacted prices are still languishing around $1,600 psf.

See also: Ho Bee Land reports 12.3% fall in 1Q earnings to $49.4 mil on absence of one-off gain

In a Monday report, analyst Tan Dehong is assuming a conservative $1,500 psf value for these properties in his RNAV forecast.

“Successful relaunches and monetisation for the Sentosa properties above our assumed $1,500 psf capital value will be catalysts for a narrowing of the discount and upgrade in RNAV,” says Tan.

In addition, Ho Bee’s Metropolis office towers at North Buona Vista Drive remain 100% leased with 30% are due for expiries this year.

Management expects Metropolis to achieve minimally flat to slightly positive rental reversions although Tan expects flat to low single-digit reversions with average rents falling within the $7.50-$8 range.

Currently, Metropolis contributes 55% of total rental income by Phillips’ estimates.

Ho Bee has also secured a toehold into Continental Europe with its investment into a property fund.

The total EUR 90 million ($144 million) investment will be into a Credit Suisse European property fund and a commercial building in Munich.

The fund’s targeted net IRR could hit “double-digit”, management has guided.

Despite the positives, Ho Bee hasn’t added new addition to land bank inventory as management has adopted a conservative strategy in its bidding, says Tan.

Tan notes that the group has been largely absent from the various GLS bids over the past few years, with only the only bid coming in the Punggol EC land site which came in 27% lower than CityDev’s winning bid of $583 psf.

Nevertheless, Tan says Ho Bee’s FY17 recurrent rental income is sufficient to cover 2.8 times FY17 ordinary dividend of 8 cents per share.

“Outlook for the recurring income portfolio is stable. We continue to stay positive for its stable recurring income and undervalued high-end property portfolio,” says Tan.

At its current share price of $2.56, Ho Bee is trading at a steep 45% discount to NAV, below its post GFC average P/NAV of 0.63 and one of the steepest discounts among locally-listed developers.

Phillip is maintaining its “accumulate” with unchanged RNAV-derived target price of $2.98.

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