Ho Bee Land Limited: China residential sales continue to support earnings August 11, 2017

PSR Recommendation: ACCUMULATEStatus: MaintainedTarget Price: 2.98
  • Revenue within our expectation, but associate’s profits higher than expected due to higher than forecasted ASPs for Yanlord Western Garden (YWG).
  • ASPs in YWG maintain stable despite property cooling measures.
  • Weakening pound was main cause for 4.7% drop in rental income in 1H17.
  • Metropolis occupancy maintained near 100% going into second renewal cycle.
  • Maintain ACCUMULATE with higher RNAV-derived target price of S$2.98.

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The positives

+ ASPs for China development project maintained despite cooling measures: HBL’s biggest development project in China, the JV project Yanlord Western Gardens maintained ASPs near RMB53k/sqm despite cooling measures in the country. The project is now 77% sold (vs 69% in previous quarter). Almost all units launched in the quarter are sold.

+ Metropolis occupancy maintained near 100% going into second renewal cycle: The Metropolis (which takes up 38% of HBL total GAV) managed to maintain a near 100% occupancy going into its second rent renewal cycle since operating in 2013. Average passing rents have held stable YoY at S$7+/psf.

The negatives

– Weakening pound was main cause for 4.7% drop in rental income in 1H17: Rental income dropped 4.7% YoY in 1H17, primarily due to the weakening pound vs SGD. The pound has weakened c.10% from 2Q17 against the SGD post Brexit.

– Slow recovery in Sentosa residential market: While we have seen improvements in transaction volumes and ASPs in the CCR region ytd, the Sentosa residential market remains weak. Rents at the Group’s 3 Sentosa condominiums meanwhile have been stable and occupancy remains in the 75%-80% region.

Outlook

HBL’s local and overseas rental properties remain stable on the back of a bottoming in Singapore office rents. Their London office properties on long leases of 5-10 years which would enable it to ride out Brexit uncertainties in the short term. Stable recurring rental income should continue to support earnings. We expect the recovery in the high end market to continue into FY18 which would benefit HBL’s 3 Sentosa condominiums.

Maintain ACCUMULATE with higher RNAV-derived target price of S$2.98.

We maintain our ACCUMULATE call with a higher TP of S$2.98. Our discount to RNAV remains at 30% and higher target price is derived following an update to the latest ASP for the Group’s China residential project. Our estimate still incorporates a conservative S$1,500/psf selling price for the 3 Sentosa condominiums.

Figure 1: RNAV Table

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Figure 2: Peer Comparison Table

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Tan Dehong
Research Analyst
Phillip Securities Research Pte Ltd

Dehong covers primarily the REITs and property developer sector. He has close to 7 years experience in equities related dealing and research roles.

He graduated with a Masters of Science in Applied Finance from SMU and Bachelors of Accountancy from NTU.

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