Ho Bee

Ho Bee Group

Company Profile

The Group is principally engaged in business of real estate development and investment in Singapore and London. The Group has a diversified portfolio of investment properties comprising residential, industrial and commercial properties in Singapore as well as residential properties in London. The group has over the decades carved out a niche in the luxury property market with its quality finishings but it is far from a property titan due to the dearth of a substantial landbank.


Q1 Mar 2004 FY Dec 2003 FY Dec 2002 FY Dec 2001 FY Dec 2000
EPS $0.0150 $0.02094 $0.00433 $0.02766 $0.04229
NAV 0.446 0.4317 0.4134 0.4156 0.3986
Net Earnings 112.8% 31.259 % 3.096 % 5.974 % 13.250 %
Margin
Debt To 0.926 0.599 0.670 0.520 1.152
Equity

* The huge leap in Debt to Equity ratio was a result of $115million forked out for the acquisition of Sentosa Cove.



EPS ($) *0.02094
NAV ($) **0.4464
Price $0.265
52 Weeks High 0.290
PE 12.655
Price / NAV **0.594
Dividend Yield (%) *2.830
52 Weeks Low0.160
Market Cap (M) 164.973
Par Value ($) 0.050
Issued & Outstanding Shares622,540,000
* Based on latest Full Year Results Announcement** Based on latest Results Announcement (Full Year, Half Year or Interim)



Undemanding Valuation

Ho Bee chalked up earnings of S$13.03million for FY03. Q1 2004 earnings was already a spectacular S$9.32million and comparing it to the whole of FY03 was a hefty 71.5%. The substantial rise in earnings arose after accounting for the share of profit of $9.8million in the group joint venture project, Rio Vista, which obtained TOP in Feb 2004.

Another relatively steady stream of income to the bottom line is its property investment division which mainly comprises of rental income from its stable of properties both locally and overseas. Rental income for Q1 2004 was S$1.7million and if we adopt a conservative projection with a error margin of 10%, rental contributions for the next 3 quarters could amount to S$4.59million. To sum it up, just merely tallying the profits of Q1 2004 and rental income for the next 3 quarters coupled with the apportioned contributions from Amaninda and Sentosa Cove, Ho Bee could stand to reap S$16.15million, easily outstripping profits of S$13.03million registered in FY03.



Projects in the pipeline

Amaninda

Ho Bee has recently launched the condominium project, Amaninda at Thomson Road. Within a period of one month, 85% of the total 70 units had been sold. Construction work is expected to be completed by the end of the year and this will result in a fair source of contribution to the Group’s earnings for the current year.

Details

Total No of Units 70
Expected date of completion : mid 2005
Sale Price Avg $650 psf
Total Floor Area 68,509 sqf
Revenue S$445,530,850
ΨEstimated Profit(Margin 5%) S$2,226,542
@Estimated contribution(FY04) S$2,226,542 x 20% = S$445,308


Ψ Profit margin for their previous Rio Vista project was about 5%.Property developers usually demand net profit margins of 10-20% before embarking on any projects. Another reason for their hefty profit margin is their rich landbank built up over the years which they are able to tap into. In this aspect, HoBee failed miserably as they do not possess the financial might to acquire land on the cheap and tapped into them when the time is ripe. Moreover, HoBee is pretty gungho in their acquisition thereby resulting in the razor thin profit margin.
@TOP in mid 2005 which falls into FY05 which means the bulk of the earnings will be recognized in FY05. However, assuming earning recognition of 20% for FY2004 as management is usually more prudent in the early stages.


Sentosa Cove

Having successfully tendered for two plots of prime land parcels in December 2003, the Group will be developing a condominium of about 200 units and 8 terraces on these plots in Sentosa island. Marketing launch is targeted for the second half of 2004.


Details

Total No of Units 200 condo. 8 terrace
Expected date of launch 2nd Half of 2004
Expected date of completion NA
ЭEstimated Sale Price Avg 700psf
Total Floor Area 337,245 sqf
Revenue S$236,071,500
ΨEstimated Profit(Margin 5%) S$11,803,575
@Estimated contribution(FY04) S$11,803,575 x 10% = S$1,803,575

Э Dearth of historical sales price on properties in Sentosa as it is a first of its kind. Similar comparison is Le Ka Shing’s flagship Costa Del Sol at avg S$820psf and other numerous developments in the East Coast area at avg 600psf.
Ψ Cost of acquisition for the land parcel amounts to 342psf, coupled with a development cost of 200psf, cost of sales translates to 542psf. Therefore, HoBee’s profit margin is a hefty S$158psf(22.5%). Numerous assumptions is undertaken into the projection, thereby a more prudent of 5% is more tactful at this juncture.
@Marketing launch is expected to be in the second half of 2004 and we can expect the bulk of the earnings to be recognized in 2005 when it achieved TOP.


Chang Yuan

The development is strategically located at the junction of Jiangsu Road and Yu Yuan Road, next to Jiangsu Road Mass Rapid Train Station. It is also surrounded by well established educational institutions such as Ladies School of the Virgin Mary, Changning International School and Communications University. Ho Bee's purchase of the 68 units in the development marked it's first foray into the China property market. The development is expected to be completed by mid 2003. Total consideration for the purchase amounted to RMB126,917,552 (approximately S$28 million) after deducting a bulk discount of 8% from the developers listed price for the apartment units.

Details

Total No of Units 68
Units Sold(As of 31 Mar 04) 9
Expected date of launch Late 2003
Expected Contributions S$2,434,782

The central govt. high-handed measures to curb the growth of the “evil” sectors has sent consumers interests waning. To date(30 Mar 04), only 9 units had been sold, a reflection of lacklustre sales. The contributions from Chang Yuan will not be factored into the projection as outlook remains uncertain and whether they could dispose off the remaining units at a profit.


Acquisition of Mount Sinai Site

The Group has entered into an agreement to acquire all 45 apartments in Yang's Garden Village, situated at No. 63 Mount Sinai Drive, Singapore.The development is located within the prestigious District 10, in a popular residential enclave about 600 metres away from Dover MRT Station
Details

Total No of Units 110
Expected date of launched : NA
Sale Price Avg $550 psf
Total Floor Area 153,944 sqf
Revenue S$84,669,200
ΨEstimated Profit(Margin 5%) S$4,233,460

Ψ Cost of acquisition for the land parcel amounts to 338psf, coupled with a development cost of 180psf, cost of sales translates to 518psf. Therefore, HoBee’s profit margin is S$32psf(5.8%).


Management

It appears that management is a tad too aggressive in their acquisition of land parcel, as evidenced by the razor thin profit margin of around 5%(Rio Vista).

As a property developer, what is even more startling is their speculative purchase of 68units of Chang Yuan in China. It seems that they are no different from the average Joe rushing to grab a piece of the apartment during the marketing launch and disposing off the asset when TOP is attained.

Clearly, the signs reminiscent of the excesses of a property market are there, GLCs are increasing bullish on the Chinese property front and charging full steam ahead . Even a consumer staple conglomerate has contemplated venturing into a US$2billion real estate development in Beijing.

What is praise-worthy is their share buy-back programme which is value creation: spending twenty odds cents to purchase forty odd cents worth of assets.



Outlook

Ho Bee is likely to see a surge in their FY04 earnings due to the numerous projects in the pipeline. FY05 will continue to remain exhilarating due to the apportioned contributions from Sentosa Cove and Amaninda. However, the prospects for FY06 appeared muted for now as their most probable cash cow is the Mount Sinai land parcel that could potentially bring in earnings of S$4.23 million.


Recommendation

For FY04, Ho Bee is expected to book record earnings of S$16.19million. My target price of S$0.31 is derived by applying a PE of 12X and this is a 20% discount to the last traded price. However, the myriad of real estate developers with the likes of Capitalland, Keppel land, HPL, Gucco land etc are all trading at varying PE 10-30X and Price/RNAV of 0.6 -0.7. There doesn’t seems to be any definite valuation yardstick entrenched for property counters, therefore my strategy is to abide by the market’s pricing and positioned my exit timeline between FY04-05 whereby earnings will likely peak. Vested interests of course.