UOB Kay Hian’s Loke Peihao and Nicola Ho have re-initiated coverage of Ho Bee Land with a “buy” rating and a target price of $3.32.
See also: CGS-CIMB raises Ho Bee Land TP to $2.70 after $250 mil investments
They cite a “solid recurring income base backed by quality office assets from gateway cities” in London and Singapore. Recurring earnings from investment properties - across the UK (52%), Singapore (42%) and Australia (2%) - made up 99% of 2019 gross profit, underpinned by the long weighted average lease to expiry (WALE) of five years in the UK and two to three years in Singapore.
Its current commercial portfolio comprises predominantly freehold office properties in London (Ropemaker Place, No.1 St Martin’s Le Grand) and Singapore (The Metropolis). Positive rental reversion is expected going into 2021 as expiring rents for its 2021F UK leases remain competitive at 3-5% below current market asking prices.
Furthermore, Loke and Ho note that Ho Bee has a “quality commercial portfolio” in excess of $4.6 billion and that opportunities beckon for an office REIT spin-off.
They pointed at the recent successful listings of Elite Commercial REIT and Prime US REIT, and said these highlight investors’ appetite for stable-yielding office assets underpinned by long WALEs, amid uncertainties stemming from the Covid-19 pandemic and US-China trade tensions.
As a testament to its asset quality and tenant profile, Ho Bee has recognised fair value gains on investment properties of $163 million per year (45% of group profit before tax or PBT) during 2010-19.
The company also boasts “shareholder-friendly capital returns”, with the analysts noting that the group has been returning more capital to shareholders via buybacks and dividends averaging $56 million per year in 2011-19, compared to $19.4 million per year in 2006-10, even as the Chua family continued to raise its stake.
Ho Bee also remains a “palatable candidate” for privatisation, given the Chua family’s 75% substantial stake and attractive valuation at 0.41x 2020F P/B.
As at 11.52am, Ho Bee traded at $2.35, with a FY20 price to book ratio of 0.4 and dividend yield of 4.4%.
