PRICE S$0.35 Hold 1Q05 Results 19/05/2005! " #$ %&! '" () *+,& " %&! -.)/$ 0 1$2%31$4%1 '.)/$ " 156 ' - % " - - ' $ '" -- " '" " ' 15 ' " './ - ' " " " " %6 7'- "' '' '- # - - "#!$ $ ' ' -' ".82 ' " "" +* ' ' ' ' ' 8 9+!! "! "! "! 9: ' - "" :* 9 7' & 7 7 7 : ' " " -'! #+ % " " ' 9 '' " "' ' " "" " " Sentosa Cove projects boost profits 1Q05 net profit surged 65% to S$15.4m, only S$1+m below the S$16.1m it made in the whole of FY04. Contributions came mainly from fully sold Amaninda and its Sentosa Cove projects. The Berth resort-styled condo project on Sentosa was launched in 4Q04 and >80% of the 200 units have been sold. Sellable area is higher than we had estimated; this has widened pretax margin to >30% and we are therefore raising our estimates to reflect this change. It has fully sold its second project in Sentosa, The Berthside. This 8-unit terrace house development, priced at S$2.2-2.8m per unit was launched last Nov. Sales of its 28-unit Changyuan apartments in Shanghai had also lifted turnover of its investment properties from S$4.2m to S$15.7m. Niche strategy in a patchy housing market is sound. It does not hoard land but focuses on medium size developments and turning them around quickly to drive capital returns. The success of its two profitable Sentosa projects has enhanced earnings visibility in the next two years. But the market appears to have discounted some of Ho Bee s success in Sentosa; its share price has remained stable after a 20% jump around Nov when it launched The Berth. Special dividend likely to continue for another 3 years but yield is lower than other dividend plays. While we like Ho Bee s performance and its strategy, we are maintaining Hold as our fair value is estimated at S$0.39 or 0.8x our RNAV of S$0.48. NRA Team 1
Review of 1Q05 results %&'($ %& %& 3 7- + & ' ' + " ')!( *+ *+ *,- 1 : "'! "! -' ;+: -" "" # +* " " 7 &9+!! # +9+ "-! " (./0 %,+% +,- 5** -'! '"! "" 1223 %*+ %+4,4- * " -" 7-5 %,+4 %%+,- 29 "--! '! ' ( '! ( 623 %+%,+ - 1Q05 net profit surged 65% to S$15.4m, only S$1+m below the S$16.1m it made in the whole of FY04. Contributions came mainly from fully sold Amaninda and its Sentosa Cove projects. The Berth resort-styled condo project on Sentosa was launched in 4Q04 and >80% of the 200 units have been sold. Sellable area is higher than we had estimated; this has widened pretax margin to >30% and we are therefore raising our estimates by 17% and 14% respectively for FY05 and FY06 to reflect this change. It has fully sold its second project in Sentosa, The Berthside. This 8-unit terrace house development, priced at S$2.2-2.8m per unit was launched last Nov. Sales of its 28-unit Changyuan apartments in Shanghai had also lifted turnover of its investment properties from S$4.2m to S$15.7m. Prospects Ho Bee continues to be confident that profit level for the current year would be significantly better than last year. It can bank on its profitable Sentosa Cove projects: >80% of 200-unit The Berth has been sold at an average selling price of S$830 psf and all of the 8 terraced units (complete with berthing facilities) for The Berthside have been sold at selling prices of S$2.2-2.8m per unit. Sales launches for Montview and the Coral Island projects are scheduled for later in the year. We will maintain our earnings projections until then when we would fine-tune our numbers to reflect sales response. Ho Bee has clarified that the S$6.2m provision it had taken last year was fully for the write down of its investment property values; none were taken against its Montview project in Mt Sinai as we had earlier assumed. Nimble strategy Ho Bee does not have a large landbank. In an environment of oversupply, this is a comfortable position. Its niche market in Sentosa has helped to cater to a select group of buyers keen to own waterfront properties. This strategy has sheltered it from the still very competitive conventional private housing market in Singapore. Its higher asset turnover is helping to lift ROEs from about 5% in 2001 to 8-12% in FY04-FY06. Its strategy will continue to be identifying niche projects such as those in Sentosa which if prudently executed would yield more lucrative margins due to less intense competition, and also in teaming up with bigger boys in large mass housing projects to share the development risks. It has successfully partnered MCL Land in the 716-unit Rio Vista. 2
)$222 7 & 8! 23! ' 2. " " - " 2. > " ( " ' 18> / >+*,&$ - " ' '' - + *+ In May 2003, Ho Bee teamed up with three other Hong Kong parties through its 70% subsidiary, HBS Investments, which took a 20% equity stake in Chongbang Development. Chongbang currently has two developments in Shanghai. The first development is residential, comprising 35 villas and approximately 360,000 square feet of apartments and retail space. The second development is a mixed development consisting of 2.3m square feet of retail office and service apartment space. Investment portfolio Balance sheet Net debt has declined from S$262m in Dec-04 to S$195m, reducing net gearing from 94% to 67%..$! 8 & ++ '- "" # :* ' 1$ " -" 1 -- ' 2*< '- +& ++ 1$ < ' "" -' - "-.): 2+< - " 29 *$ < '- ' " =% &<) ' ' ' 8$*+ "" " "- :$ ' ' ''" ( -" - < ;% 7' 7" 7' - )$222 2 #! 0!( 02 6#93 3.1 2 5 3% *?'" 3.<& < 5 #:* -"? 5 *1 4%. -- 3% * -?" 2;.$% 2%= 5 @$?'' /!)!22 3 @ (*+ 5 3 '& 41 4 5?-' 4).$) 4).$) 8$? $ *1 2&).A -- #:*?" $ *1 2&).A -- #:* "? 61 B++ 1 --?". 2&. 2& --- -?-- 3
Valuation We believe Ho Bee has done a sterling job in the last two years amidst a sluggish private housing market in Singapore. Its penetration into the Sentosa niche will ensure profitability in the next 2-3 years, enhancing its near term earnings visibility. However, its success is likely to attract more developers into this same market in the future. We therefore see some uncertainty to the sustainability of its longer term earnings growth unless it is able to clinch even more projects that are equally lucrative. Although Ho Bee had delivered its promise to continue its dividend friendly policy, we believe its high gearing precludes an exceptionally large payout on a sustained basis. For two years running, it has rewarded shareholders with a 0.5 special dividend, bringing total DPS to 1.25 or a yield of 3.6%. Ho Bee is likely to continue with the specials for another 3 years. While this is more attractive than deposit rates, it is still less than a few of its peers UEL s 3% base dividend with good chances of higher payout and Chip Eng Seng s estimated 11.5%.!! 3 " " 8 & - " +& ' - " ')!( %+4,+4 %+ +% 3 7" 7 8 & " +& " 8 & % 7 7 7 8&+& 7' 7./0 4+ %+ + +% 5** 7 7" 7" 7" 12! 23 +,+, +, +% * 523 +, %+ + +% 29-7" 7' 7 ( 623 %+ %+% *+,+4 After the 20% share price jump since its successful launch of The Berth, its share price has stabilized. The market it would appear has already priced in some of its FY05-06 growth. While we like Ho Bee s performance and its strategy, we are maintaining Hold as our fair value is estimated at S$0.39 or 0.8x our RNAV of S$0.48. 4
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