Earnings estimates for FY2009F to FY2011F. Ho Bee is likely to remain profitable for the next three years as it will record revenue from residential projects that have been sold. We expect it to report net profit of S$157.6m, S$68.0m and S$65.6m for FY2009F, FY2010F and FY2011F respectively.
Outlook for FY2009F. Ho Bee mentions that it expects to be profitable this year on revenue recognition from its residential projects, The Coast, Paradise Island and Orange Grove Residences, which have been substantially sold.
Strong sales in the property market. Based on the figures from URA, there was a huge jump in the number of homes sold from 108 units in January 2009 to 1,332 units in February 2009. After that, the number of homes sold declined slightly to 1,220 units in March 2009 and 1,207 units in April 2009. This shows that there is a recovery in the property market with an increase in the number of transactions from January 2009. This is because developers have cut the prices of private properties by 10% to 20% to attract HDB upgraders.
However, the luxury segment has not recorded any sales for the past three months as there were no sales for homes that are sold above S$2,500 per square foot. In fact, we expect further softening of prices for this segment.
Maintain HOLD recommendation, fair value raised from S$0.42 to S$0.68. We maintain our hold recommendation for Ho Bee as it has not launched its properties for sale recently. Moreover, we are concerned about the possible decline in sale prices of its properties in the luxury segment. However, we raise the fair value from S$0.42 to S$0.68 to reflect the recovery of the property market in Singapore. This is based on a reduction in the discount from 75% to 60% of the RNAV of S$1.71.
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