Ho Bee reported 2Q09 PATMI of S$157.3m (+325% yoy), bringing 1H09 net profit to S$194.6m, up 208.6% yoy. The results include S$109.8m in land write-downs and revaluation losses. The results are way above our and consensus’ expectations due to earlier-than-expected completion and profit recognition mainly from The Coast and Paradise Island projects that obtained TOP in Apr-May 09. Revenue from the property investment segment improved in 2Q09 to S$4.6m (+12% yoy) due to an increase in rental income from the Group’s industrial and retail spaces. Hotel revenues continued to decline in 2Q09 to S$1.1m (-50%yoy) due to the drop in tourist arrivals. The Group announced an interim dividend declaration of 2 cents per ordinary share.
Gearing down to comfortable levels despite huge asset write-downs. Ho Bee’s gearing dropped from 1.26x to 0.51x due to the repayment of borrowings from the strong collections of proceeds from The Coast and Paradise Island. This is despite booking S$109.8m in land write-downs and revaluation losses. The asset write-downs relate to a S$53.9m land write-down for the Pinnacle site, S$25.4m mostly from the Elmira Heights site and S$30.4m in revaluation losses mainly from Samsung Hub.
Riding on improved homebuyer sentiment in mid-tier to high-end segments. Ho Bee is a key beneficiary of the return of homebuyer interest in the mid-tier to high-end segments as it derives nearly 87% of its value from these segments. The Group also sold more than 20% additional units each at The Orange Grove and Dakota Residences projects at S$2,200psf and S$870 psf respectively. Riding on the improved sentiment, it is likely to launch Trilight and Parvis in 4Q09.
Key beneficiary of expected demand driven by upcoming IR on Sentosa. Ho Bee is the biggest Sentosa developer with a landbank of 2.5m sf of GFA and has been reaping rich rewards as the pioneer developer there. The opening of Resorts World@Sentosa in 1Q10 could act as a catalyst in boosting price levels at the land-scarce Sentosa Cove enclave, which bodes well for Ho Bee. It has yet to relaunch the Turqoise@Sentosa Cove project and launch the Seascape and Pinnacle Collection projects.
Ho Bee is well positioned to take advantage of the recent resurgence in buying interest in the mid-tier to high-end segments as it derives over 87% of its value from these segments. We maintain our BUY recommendation with a target price of S$1.65 pegged at parity to 2009 NAV.
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