SINGAPORE (Mar 5): Phillip Capital is maintaining its “accumulate” call on Ho Bee Land with a target price of $2.98.

This comes on the back of the group announcing on Feb 28 that its 4Q earnings have dropped by 20.9% y-o-y to $102.4 million, while FY17 earnings were 15% higher y-o-y at $249.3 million.

See: Ho Bee Land posts 20.9% drop in 4Q earnings to $102.4 mil

In a Friday report, analyst Dehong Tan says, “Excluding the effects of acquisitions and divestments in 2017, we estimate the recurring income rental portfolio would have managed an approximate 3.7% y-o-y gain.”

The group’s Grade A office in Buona Vista, The Metropolis, remains to be its largest contributor to its recurring income, contributing slightly more than 50% of total income by the analyst’s estimates.

In addition, the group’s management has expressed the possibility of capitalising on the improved market sentiment and interest in high-end market. After falling 17 straight quarters, property price index for core central region properties recovered 1.7% since 2Q17.

“We have factored in capital values of $1,500 psf for the group’s Sentosa properties in our RNAV calculation, which is in the lower end of the $1,417 psf – $2,212 psf range transacted prices for these projects in the secondary market from 2017,” says Tan.

Currently, the analyst’s outlook for the group’s recurring income portfolio is stable, estimating about 20% of leases in Metropolis to expire this year, where most were the first batch of leases signed five year ago when the offices first opened.

Meanwhile, positive rental reversion is estimated to be at least in the mid-single digits. The recovering sentiment in the Singapore residential market bodes well for any re-launch possibility for the group’s three condominiums in Sentosa, currently held for rental.

As at 11.25am, shares in Ho Bee Land are trading at $2.56, giving it a FY18 price-to-book ratio of 0.5 with a dividend yield of 3.2%.