• FY14 figures above expectations
• Diversifying portfolio geographically
• Prudent net gearing at 52%

FY14 earnings fairly high quality

HPL‟s FY14 PATMI decreased 30.0% to S$124.4m mostly due to reduced contributions from JV and associates (major JV projects the Interlace and d‟Leedon both attained TOP in Sep-13 and Oct-14, respectively), lower fair value gains on investment properties (S$5.7m in FY14 versus S$21.4m in FY13) and the absence of divestment gains on the sale of London investment properties in FY13. In terms of the topline, FY14 revenues also eased 11.2% to S$614.6m given the absence of progress recognition from Tomlinson Heights which attained TOP in Mar-14, partially offset by higher contributions from the group‟s resorts in the Maldives and Bali. We judge FY14 earnings to be above our expectations, however, and to be of a fairly high quality given firmer-than-anticipated recurring profits from the hospitality portfolio and significantly lower fair value gains booked YoY. A final dividend of 10.0 S-cents (comprising 4.0 S-cents final, 6.0 S-cents special) has been proposed for FY14, versus 8.0 S-cents in FY13.

Focused on strengthening overseas exposure

For the group‟s domestic residential portfolio, the 70-unit Tomlinson Heights development is about 49% sold and JV projects with CapitaLand, the 1715-unit d‟Leedon and 1040-unit The Interlace, are 87% and 84% sold, respectively. With the housing slow-down in Singapore, the group has focused on portfolio diversification and strengthening its overseas exposure. Management reports that soft marketing at its London residential projects at Burlington Gate and Campden Hill has begun, and we note that income from these projects will be wholly recognized only upon completion. In addition, the group also acquired, over FY14, Six Senses Laamu in Maldives and a joint venture investment in a development in Paddington, London.

Net gearing held at prudent 52.1%

Despite significant acquisition activity, HPL saw its net gearing increase only marginally QoQ from 49.2% to a still fairly prudent 52.1% due to cash received from buyers at Tomlinson Heights and The Interlace upon attaining TOP. Maintain BUY with an unchanged fair value estimate of S$5.32 (35% discount to RNAV).

Source: OCBC Research - 26 Feb 2015