Ho Bee Land Limited: Overseas residential sales and new London office acquisitions continue to drive earnings November 11, 2016

PSR Recommendation: ACCUMULATEStatus: MaintainedTarget Price: 2.20
  • 3Q16 revenue of S$49.3m, a 23% y-o-y increase, driven by sales recognition of two residential development projects in Melbourne and Gold Coast, Australia.
  • China residential projects in Shanghai and Zhuhai drove up profits from associates. Selling prices remain buoyant.
  • Little lease expiries for Metropolis (c.40% of computed GAV) over next 2 years and long weighted average lease expiries for London offices provide income visibility.

1

 

Completion of development projects in Australia and new London office acquisitions boost revenue and rental income respectively. Ho Bee Land’s (HBL’s) two residential development projects Rhapsody in Gold Coast and Pearl in Melbourne were recently completed, and drove top line growth from development property income. We expect this revenue boost to taper off in the coming quarters as bulk of the revenue from these two projects has already been recognised.

 

HBL’s three London office acquisitions in 2HCY15 drove rental income up to S$108.6m, a 15.3% y-o-y increase. HBL’s London commercial properties portfolio take up c.28% of our computed Total Gross Asset Value (GAV), with these three properties making up half of that London portfolio. Whilst the weakening GBP post-BREXIT provides a concern for investors, we note that notwithstanding this uncontrollable factor, these three properties provide stable recurring income with long average lease expiry terms.

Figure 1: Long Lease Expiries for 3 London offices acquired in CY2H15

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China sales in Shanghai and Zhuhai remain buoyant. We expect buying sentiment in the Group’s two China projects to sustain. HBL‘s two joint projects with Yanlord Land – Yanlord Western Gardens 仁恒西郊花园in Shanghai, and Yanlord Marina Peninsula Gardens 仁恒滨海半岛花园 in Zhuhai, continue to attract healthy buying interest with rising average selling prices. Yanlord Marina Peninsular Gardens Phase 2 for instance, are currently selling at c.RMB35,000/sqm, a 119% increase over the RMB16,000/sqm at first launch in CY4Q14.

On the investment front, Shanghai and Zhuhai continue to register healthy capital inflow for real estate development with 9M16 investments hitting 74% and 90% of 2015 full year numbers for Shanghai and Zhuhai respectively.

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Tan Dehong
Investment 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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