Ho Bee Investment Ltd

Healthy pre-commitment for office space

BloombergReuters POEMS HOBEE SPHBEE.SIHBI.SG Industry: Property Phillip Securities Research Pte Ltd 1 March 2013
Ho Bee Investm ent Ltd Rating - Previous Rating Target Price (SGD) - Previous Target Price (SGD) Closing Price (SGD) Expected Capital Gains (%) Expected Dividend Yield (%) 1 3 2.29 1.44 1.885 21.7% 2.7% 24.3% Buy Neutral

Report type: Full Year Results

Company Overview Ho Bee Investment Ltd is a real estate development and investment company with an extensive and diverse portfolio covering high quality residential, commercial and high-tech industrial projects.

4Q12 revenue at $224.9mn, increased 238%y-y and PATMI, after including the discontinued hotel operation, was $67mn or 0.3%y-y lower The management cautioned that 2013 will be a challenging year following the series of cooling measures The Metropolis is 60% pre-committed, expect reval gain upon completion Upgrade to Buy at higher fair value of $2.29

Expected Total Return (%)

Raw Beta (Past 2yrs w eekly data) Market Cap. (USD mn / SGD mn) Enterprise Value (USD mn / SGD mn) 3M Average Daily T/O (mn) 52 w eek range (SGD) Closing Price in 52 w eek range

0.86 1044 / 1291 1386 / 1711 1.2 1.08 - 2.02

0%

50%

100%

2.20 2.00 1.80 1.60

1.40

What is the news? Ho Bee reported its 4Q12 revenue at $224.9mn, increased 238%y-y due to higher sales recognition from property development projects. Lower fair value gains from its investment property were recorded at $17.6mn vs $41.3mn in the same period last year. Coupled with lower share of profits from associated co. and JVs, PBT was $74.3mn, or 7.6%y-y higher. The 4Q12 PATMI, after including the discontinued hotel operation, was $67mn or 0.3%y-y lower. For the full year, PATMI was $187mn, or 7.6% y-y lower.
Fig 1: Results summary Income 4Q12 4Q11 Y-Y % FY12 Statement
(S$ 'mn)

1.20 1.00
Feb-12

8 7 6 5 4 3 2 1 0

Volume, mn

May-12

HOBEE SP EQ UITY

Aug-12

Nov-12

STI rebased

Feb-13

FY11

Y-Y

Major Shareholders 1. Ho Bee Holdings Pte Ltd 2. Ho Bee Investment Ltd

(%) 70.2 2.9

Revenue 224.9 Gross profit 62.5 Associates -0.2 JV entities 2.1 PBT 74.3 PATMI 66.9 Source: Company

66.6 237.6% 461.6 20.8 200.8% 151.7 0.1 N.M. -0.5 12.3 -83.2% 29.5 69.1 7.6% 206.8 67.1 -0.3% 187.1

331.2 39.4% 118.8 27.6% 0.7 N.M. 44.9 -34.4% 224.2 -7.8% 202.5 -7.6%

Key Financial Sum m ary FYE Revenue (SGD mn) Net Profit, adj. (SGD mn) EPS, adj. (SGD) P/E (X),adj. BVPS (SGD) P/B (X) DPS (SGD) Div. Yield (%) Source: Bloomberg, PSR est.

12/11 331 168 0.23 8.1 2.34 0.8 0.04 2.1%

12/12 462 172 0.25 7.6 2.58 0.7 0.05 2.7%

12/13F 146 109 0.16 11.9 3.14 0.6 0.04 2.1%

12/14F 176 146 0.21 9.0 3.31 0.6 0.04 2.1%

How do we view this? Overall results beat our expectations with bottom line exceeded our estimates by about 20% due to lower expenses and taxes reported. We are optimistic on the healthy pre-commitment at The Metropolis, and expect reval gain upon its completion in 2H13 to boost its NAV and provide stronger recurring income. Investment Actions? RNAV is increased to $3.82 and fair value lifted to $2.29 from $1.44 on a narrower discount to RNAV of 40%. Upgrade to Buy.
fffff

*All multiples & yields based on current market price Valuation Method RNAV Analyst Bryan Go gock@phillip.com.sg +65 6531 1792

MCI (P) 194/11/2012 Ref. No.: SG2013_0049

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Ho Bee Investment Ltd Singapore Equities Research 1 March 2013 Residential sales update Sales progress mainly came from The Orange Grove which saw 100% sold to date as well as Trilight, which obtained TOP in the quarter. Sales at Sentosa Cove continued to be challenging with only 47% and 28% sold to date for Turquoise and Seascape respectively, barely changed since a year ago. We expect the increased in property tax as announced on 25 Feb to affect these completed but unsold units, but it will be minimal to the group as it will be sufficiently covered by its rental income.
Fig 2. Sales progress summary for Singapore projects
Projects (Singapore) Residential The Orange Grove (Orange Grove Rd) Parvis (Holland Hill) Turquoise (Sentosa Cove) Seascape (Sentosa Cove) Trilight (Newton Rd) Total Total Units Sold Units Sold Units Sold Units Sold Units in 4Q11 in 3Q12 in 4Q12 To Date % Sold To Date

Fig 3: Reported revenue is 102% of our FY12 estimate

700 600 500 400 300 200 100 0 S$'mn

FY10

FY11

FY12

FY13E

FY14E

Reported revenue

PSR estimates

Source: Company, PSR estimates Fig 4: Reported PATMI is 120% of our FY12 estimate
500

400
72 248 91 151 205 4 0 0 3 4 11 3 0 0 2 2 6 11 0 1 -3 2 11 72 248 43 42 203 100% 100% 47% 28% 99%

300

200
100 0 FY10 S$'mn FY11 FY12 FY13E
PSR estimates

FY14E

Reported net profit

Industrial One Pemimpin (Pemimpin Dr) 115 8 Source: Company, PSR estimates

Source: Company, PSR estimates

115 100%

Challenging outlook but reval gain is promising The management cautioned that 2013 will be a challenging year following the series of cooling measures introduced to the property market. Ho Bee remaining land banks (or inventories) are mainly concentrated at Sentosa Cove, and we expect sales in this high-end segment to remain lukewarm in the year ahead. Among the overseas projects, we expect Ho Bee to partially launch its Tangshan Nanhu Eco-City (40% stake) in the 2H13. We expect its core earnings in FY13 to drop to ~$109mn mainly from the remaining sales of its completed projects coupled with divestment gains from the sales of Hotel Windsor ($25.9mn) and Chongbang Holdings (Int) Ltd ($32.7mn). That said, its office development, The Metropolis, is on track to complete in 2H13. We are delighted to note that it has been 60% pre-committed by MNCs such as Shell, NOL, P&G as well as SGX, with rent ranging $5.5 to $6psfpm on average. We factor in a potential revaluation gain of ~$378mn upon the completion of The Metropolis. That brings the FY13E PATMI to $423mn.

Upgrade to Buy with fair value increased to $2.29 We update our sales estimates and factor in the divestment gains, RNAV is increased from $3.61 to $3.82. We also narrow the discount to RNAV to 40% (previously 60%) to reflect the promising leasing progress achieved at The Metropolis. Fair value in thus increased from $1.44 to $2.29. We upgrade our recommendation to Buy. We expect the completion of The Metropolis to boost its NAV and recurring income upon completion. Net gearing remained low at 0.17x as of Dec 2012 which provides sufficient headroom to gear up for its development capex.
Ho Bee Investm ent RNAV Surplus from investment properties (S$ m) Gain from divestment of investment properties NPV surplus of development properties (S$ m) Book value in FY2012 (S$ m) RNAV (S$ m) Total shares issued (m) RNAV per share (S$) Discount (%) Fair value (S$) 355.9 58.6 446.8 1786.7 2647.9 692.8 3.82 40% 2.29

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Ho Bee Investment Ltd Singapore Equities Research 1 March 2013

FYE Dec Valuation Ratios P/E (X), adj. P/B (X) EV/EBITDA (X), adj. Dividend Yield (%) Per share data (SGD) EPS, reported EPS, adj. DPS BVPS Grow th & Margins (%) Grow th Revenue EBITDA EBIT Net Income, adj. Margins EBITDA margin EBIT margin Net Profit Margin Key Ratios ROE (%) ROA (%) Net Debt/(Cash) Net Gearing (X) Incom e Statem ent (SGD m n) Revenue EBITDA Depreciation & Amortisation EBIT Net Finance (Expense)/Income Other items Associates & JVs Profit Before Tax Taxation Profit After Tax Non-controlling Interest Net Incom e, reported Net Incom e, adj. ^Restated Source: PSR FY10 5.0 0.9 4.8 2.1% 0.45 0.38 0.04 2.00 FY11^ 8.1 0.8 9.3 2.1% 0.28 0.23 0.04 2.34 FY12 7.6 0.7 9.3 2.7% 0.27 0.25 0.05 2.58 FY13F 11.9 0.6 3.5 2.1% 0.61 0.16 0.04 3.14 FY14F 9.0 0.6 13.5 2.1% 0.21 0.21 0.04 3.31

-48.2% -29.7% -29.8% -17.6% 59.0% 58.7% 57.3%

-44.8% -48.3% -48.7% -39.4% 55.3% 54.7% 60.6%

39.4% 0.1% 0.2% 2.5% 39.7% 39.3% 39.7%

-68.3% 170.2% 172.6% -36.6% 338.0% 337.8% 292.4%

20.1% -74.5% -74.5% 33.2% 71.9% 71.7% 87.2%

24.9% 15.6% 675 0.45

13.0% 8.6% 452 0.27

10.9% 7.9% 299 0.17

21.5% 16.0% 137 0.06

6.5% 4.9% 95 0.04

600 354 2 353 (2) 0 52 402 (58) 344 11 333 278

331 183 2 181 (3) 0 46 224 (23) 201 1 203 168

462 183 2 181 (4) 0 29 207 (24) 183 (0) 187 172

146 495 0 495 (6) 0 27 516 (88) 428 2 426 109

176 126 0 126 (6) 0 65 185 (31) 153 8 146 146

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Ho Bee Investment Ltd Singapore Equities Research 1 March 2013

FYE Dec Balance Sheet (SGD m n) PPE Intangibles Associates & JVs Investment/Development Property Others Total non-current assets Inventories Accounts Receivables Investment property/Property held for sale Cash Others Total current assets Total Assets Short term loans Accounts Payables Others Total current liabilities Long term loans Others Total non-current liabilities Non-controlling interest Shareholder Equity Cashflow Statem ents (SGD m n) CFO Profit for the period Adjustments Cash from ops before WC changes WC changes Cash generated from ops Taxes paid, net Interest paid Cashflow from ops CFI CAPEX, net Dividends from associates & JVs Dividends/Interest from Investments Purchase/sale of investments Investments in subs & associates Others Cashflow from investm ents CFF Share issuance Purchase of treasury shares Loans, net of repayments Dividends to minority interests Dividends to shareholders & capital reduction Others Cashflow from financing Net change in cash Effects of exchange rates CCE, end ^Restated Source: PSR FY10 102 0 297 637 614 1,650 0 49 646 75 6 777 2,426 142 73 69 284 609 34 642 23 1,476 FY11^ 122 0 380 649 572 1,722 0 51 418 57 58 585 2,307 118 45 47 210 391 41 432 21 1,645 FY12 17 0 419 761 606 1,802 0 8 282 163 186 639 2,441 186 82 47 315 276 44 319 20 1,787 FY13F 16 0 446 873 606 1,941 0 12 337 405 186 939 2,880 2 50 47 99 540 44 583 20 2,178 FY14F 16 0 511 985 606 2,117 0 14 235 530 186 965 3,082 47 49 47 143 578 44 621 22 2,296

344 (95) 249 186 435 (114) 0 321 (427) 1 3 182 (488) 0 (729) 0 0 345 (10) (22) (0) 312 (96) (0) 75

204 (95) 109 158 267 (51) 0 216 (54) 26 4 162 (55) 0 84 0 (43) (248) (4) (22) 0 (317) (18) 0 57

187 (43) 144 183 327 (20) 0 307 (123) 32 3 46 (65) 0 (107) 0 (17) (49) (1) (28) 0 (95) 105 0 163

428 3 431 (90) 341 (88) 0 253 (86) 0 5 0 33 0 (48) 0 0 74 (2) (35) 0 37 242 0 405

153 (32) 121 99 220 (31) 0 189 (112) 0 5 0 0 0 (106) 0 0 77 (6) (28) 0 43 126 0 530

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Ho Bee Investment Ltd Singapore Equities Research 1 March 2013

Ratings History 2.4 2.2 2 1.8 1.6 1.4 1.2 1 0.8
Dec-09 Mar-10 Jun-10
Sep-10
Market Price Target Price

Source: Bloomberg, PSR

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

1 2 3 4 5 PSR Rating System Total Returns Recom m endation Rating > +20% Buy 1 +5% to +20% Accumulate 2 -5% to +5% Neutral 3 -5% to -20% Reduce 4 <-20% Sell 5 Rem arks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence o

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Ho Bee Investment Ltd Singapore Equities Research 1 March 2013 Contact Information (Singapore Research Team)

Chan Wai Chee CEO, Research Special Opportunities +65 6531 1231 yebo@phillip.com.sg Go Choon Koay, Bryan Investment Analyst Property +65 6531 1792 gock@phillip.com.sg Ng Weiwen Macro Analyst Global Macro, Asset Strategy +65 6531 1735 ngww@phillip.com.sg Research Assistant General Enquiries +65 6531 1240 (Phone) research@phillip.com.sg

Joshua Tan Head of Research Global Macro, Asset Strategy +65 6531 1249 joshuatan@phillip.com.sg Travis Seah Investment Analyst REITs +65 6531 1229 travisseahhk@phillip.com.sg Roy Chen Macro Analyst Global Macro, Asset Strategy +65 6531 1535 roychencz@phillip.com.sg

Derrick Heng Deputy Head of Research SG Equity Strategist & Transport +65 6531 1221 derrickhengch@phillip.com.sg Ken Ang Investment Analyst Financials, Telecoms +65 6531 1793 kenangwy@phillip.com.sg Nicholas Ong Investment Analyst Commodities, Offshore & Marine +65 6531 5440 nicholasonghg@phillip.com.sg

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Ho Bee Investment Ltd Singapore Equities Research 1 March 2013 Contact Information (Regional Member Companies)

SINGAPORE Phillip Securities Pte Ltd Raffles City Tower 250, North Bridge Road #06-00 Singapore 179101 Tel +65 6533 6001 Fax +65 6535 6631 Website: www.poems.com.sg HONG KONG Phillip Securities (HK) Ltd Exchange Participant of the Stock Exchange of Hong Kong 11/F United Centre 95 Queensway Hong Kong Tel +852 2277 6600 Fax +852 2868 5307 Websites: www.phillip.com.hk INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta 10220 Indonesia Tel +62-21 5790 0800 Fax +62-21 5790 0809 Website: www.phillip.co.id THAILAND Phillip Securities (Thailand) Public Co. Ltd 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand Tel +66-2 6351700 / 22680999 Fax +66-2 22680921 Website www.phillip.co.th UNITED KINGDOM King & Shaxson Capital Limited 6th Floor, Candlewick House, 120 Cannon Street, London, EC4N 6AS Tel +44-20 7426 5950 Fax +44-20 7626 1757 Website: www.kingandshaxson.com AUSTRALIA PhillipCapital Level 12, 15 William Street, Melbourne, Victoria 3000, Australia Tel +61-03 9629 8288 Fax +61-03 9629 8882 Website: www.phillipcapital.com.au

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