Decent earnings despite challenges. Ho Bee reported an FY12 PATMI of SGD187.1m, down 7.6% YoY. Excluding fair value and divestment gains, core PATMI is estimated to be SGD155.8m, which is a 10% YoY improvement instead, and largely in line with expectations. We continue to like Ho Bee for its deep value and are maintaining our BUY recommendation.

Residential inventory centered around Sentosa Cove. In FY12, gross profit from property development rose by 32.8% YoY to SGD144.1m, mainly with the completion of One Pemimpin and Trilight projects, as well as the sale of the remaining units at The Orange Grove. Currently, Ho Bee’s unsold inventory is largely concentrated in Sentosa Cove, from the projects Turquoise (47% sold), Seascape (28% sold) and The Pinnacle Collection, which has yet to be launched. On a positive note, developments on Sentosa Cove are not subjected to the QC requirements under the Residential Property Act, hence Ho Bee does not face a race against time to offload the units.

The Metropolis now 60% committed. The Metropolis at One-North in Buona Vista has attracted encouraging demand and is already 60% pre-committed nearly half a year ahead of completion. NOL has confirmed it will be moving in in 2H14. Shell and P&G are also reportedly taking up space in the 1m- sq ft development.

Another non-core investment sold. The divestment of Hotel Windsor is expected to be completed in May 2013, from which Ho Bee will receive proceeds of SGD163m. Ho Bee also announced that it has sold its 9.024% stake in a Chinese investment known as Chongbang International Holdings for a consideration of USD38.8m (SGD48.1m), and will recognize a gain of SGD32.8m in FY13. With these proceeds, Ho Bee’s balance sheet will be further strengthened, and the Group will continue to look for acquisition opportunities in Singapore and abroad.

Trading at deep value. Ho Bee trades at an attractive 27% discount to NAV and 47% discount to our RNAV of SGD3.28. Maintain BUY with a target price of SGD2.30, pegged to a 30% discount to RNAV.

Source: Maybank Kim Eng Research - 01 Mar 2013