• Increase in residential overseas projects in Australia and China drove earnings.
• Long WALE of 5 UK properties enables Group to ride out post-Brexit uncertainty. Management plans to continue holding these properties for recurring income.
• Group to continue with interim leasing strategy for three Sentosa Cove properties.
• Maintain ACCUMULATE with an unchanged RNAV-derived target price of S$2.64.

• Updates on overseas residential projects. Ho Bee Land’s (HBL’s) residential projects in Shanghai, Zhuhai and Tangshan have maintained their positive sales momentum, despite the numerous cooling measures by the government. To date, 68% of Yanlord Western Garden, Shanghai, c.44% of Yanlord Marina Peninsula, Zhuhai and 86% of Yanlord HubinCheng, Tangshan (completed) has been sold. We note the rising asking prices for HBL’s projects in Shanghai and Zhuhai over the last few years (refer to Figure 1) since launch and opine that the Chinese government’s stricter capital controls for foreign property investments could entice potential buyers to look inward and consider domestic property purchases thereby boosting demand for domestic properties.

• UK properties update post Brexit. The leases for HBL’s five remaining assets in UK are on long tenures ranging from five to ten years, which will enable the Group to ride out uncertainties during the next 2-3 years of Brexit negotiation. HBL also has a natural hedge of 70% for its UK properties which buffers against any further depreciation of the GBP. Management has expressed their intention to continue holding the five remaining UK properties for recurring income.

• Continuing with interim leasing strategy for three Sentosa Cove properties. HBL will continue with its interim leasing strategy for its three Sentosa Cove Condominiums pending the recovery of the high-end residential market. Average occupancy for the projects stand at c.70%.

Investment Action

At 0.55 P/NAV, HBL trades at a bigger discount to large cap peer average (market capitalisation >SGD 1bn) of 0.84. We opine that interest in high-end properties is returning as the divergence in prices between Singapore’s and regional high-end property widens. The returning interest should narrow the P/NAV gap in HBL’s share price as the negativity towards the Group’s Sentosa Cove properties subsides. We maintain our ACCUMULATE call on Ho Bee Land with an unchanged RNAV-derived target price of S$2.64.

Figure 1: Average asking prices for HBL’s two main projects in Zhuhai and Shanghai rose substantially over the last few years

Figure 2: RNAV Table

Figure 3: Peer Comparison Table