Ho Bee Investment (KimEng)

Event

Sentosa Cove’s median rental for the month of July 2011 showed a monthly improvement of 8.5% to $4.45 psf pm after six consecutive months of decline. Sales of industrial units at One Pemimpin also hit a new ASP of $820 psf. Outstanding number of shares has been reduced by 2.7% as a result of the $26.7m share buyback since the start of the year. The current price level is where founder and CEO Chua Thian Poh bought 2m shares in February 2011. Maintain BUY.

Our View

Sales of residential units in Sentosa Cove remained slow but July’s median rental came out to be $4.45 psf pm, an 8.5% improvement from June’s $4.10 psf pm, the first monthly increase since December last year. The Residences at W by CDL was completed in 2Q11, bringing the total number of completed condo units on the island to 1,423. The other projects still under construction are SC Global’s Seven Palms (41 units), and IOI/Ho Bee’s Pinnacle Collection (357 units).

Management said the redevelopment of the high-tech industrial building, One Pemimpin, is now over 87% sold at an average price of $820 psf. The achieved ASP is a new price benchmark for industrial units in the vicinity. We estimate the project to yield $70m in pre-tax profits when fully sold. Construction has started and is expected to be completed in the middle of next year.

Ho Bee has been buying back its own shares. Year-to-date, $26.7m have been spent on reducing the outstanding number of shares by 19.5m, or 2.7%. We view this development positively as it enhances shareholders’ value and improves earnings and book value per share. During the same period, Ho Bee’s founder and CEO Chua Thian Poh has purchased 2.6m shares at an average price of $1.36/share.

We estimate there remains about $584.2m ($0.815/share) in sales revenue to be progressively recognised until end-2012. The Orange Grove (68% sold), Turquoise (48% sold) and Seascape (26% sold) have received their Temporary Occupation Permits and any additional units sold will be immediately recognised. Ho Bee’s unsold landbank, predominantly (>85%) in Sentosa Cove, is valued at $1.3b ($1.86/share) based on our estimates.

Action & Recommendation

The stock trades at 0.62x P/B, below its five-year average of 1.17x. We reiterate our BUY call and target price of $1.93, pegged at a 30% discount to its RNAV of $2.76/share.