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from UOB Kay Hian
| Thursday, August 10, 2006 | |||||
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| Ho Bee Investment Riding High On The Sentosa Wave | |||||
| Current Price : S$0.84 Target (12-mth) : S$1.06 | |||||
| The integrated resort (IR) is now the hottest investment and macroeconomic theme in Singapore. After the successful bid by Las Vegas Sands for the Marina Bay site, Singapore has now catapulted to world-class status as a premier resort centre. All eyes are now on the second IR on Sentosa Island and the result of the tender is expected by the end of the year. | |||||
| First-mover advantage in Sentosa Cove, Singapore's choicest oceanfront residential enclave. Ho Bee is reaping rich rewards as the pioneer developer in Sentosa Cove. Sales of its Sentosa projects have been excellent- all the Berthside terrace houses have been sold, and The Berth by the Cove condominium and Coral Island bungalows are almost fully sold. As a sizeable portion of development profits has not been recognised, these projects will underpin Ho Bee's robust earnings growth going forward. Two new projects, The Baywater Collection and Paradise Island, are expected to contribute another 22 cents to our RNAV/share and strengthen Ho Bee's foothold in this niche. | |||||
| High-end residential, the brightest residential segment to add further value. Apart from Sentosa Cove, Ho Bee's other projects are mainly high-end residences. Its Montview condominium in prime district 10 is about 96% sold since its launch a year ago. With three new launches (two in district 10), it is well positioned to take advantage of the strong prices in prime locations, supported by greater participation by foreigners. | |||||
| Astute management and asset-light strategy. Ho Bee has a track record of reading the market right and timing its land acquisitions and projects well. This, together with the policy of rolling out projects quickly, enables it to achieve high operational efficiency. The strong cash flow, due to its asset-light policy, also results in a strong balance sheet which provides a lot of leeway to leverage for expansion. Furthermore, this strategy limits Ho Bee's exposure should the property cycle turn, thereby containing its risk. | |||||
| Valuation. With the positive outlook and clear earnings visibility, we initiate coverage with a BUY and a target price of S$1.06 based on parity to our RNAV estimate. At S$0.84, Ho Bee is trading at an 21% discount to our RNAV with a price upside of 26%. |