SINGAPORE (Dec 1): DBS Research says investors should take another look at Hong Fok Corporation, the owner, developer and investor of prime commercial assets in Singapore.

Hong Fok has a sizeable investment portfolio valued at $2.6 billion at end 3Q17 which serves as a steady source of recurring income of $50.8 million p.a. on average over the past three years.

Close to 70% of the portfolio value is derived from three assets – Yotel Singapore and International Building in Orchard Road and the office block at The Concourse.

In a Friday unrated report, analyst Derek Tan says Hong Fok’s portfolio can fetch above-book bids if put to the market.

The $1,885 psf average holding cost of the office block at The Concourse on the books is more than 30% lower than the latest breakeven for The Beach Road commercial site by Guocoland.

In addition, its prime properties in Orchard – International Building with a holding value of $1,855 psf and Yotel — are valuable assets which will attract strong demand from international investors if an opportunity to acquire them comes along.

Looking ahead, the Oct launch of Yotel Singapore Orchard Road is set to double rental income to sustainably higher levels of $99 million p.a. by FY19. Unit sales for Hong Fok’s Concourse Skyline and Jewel of Balmoral could also improve given the robust residential backdrop.

“Our RNAV is based on the valuation of Hong Fok’s existing investment and development properties,” says Tan, “After imputing a 40% discount to RNAV, we arrive at a fair value of $1.31.”

However he warns of low liquidity and lucrative executive compensation at the expense of a higher dividend payout could hamper the stock’s ability to re-rate despite positive catalysts.

Shares in Hong Fok are up 6 cents at 88 cents or 0.4 times FY18 book value.

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