SINGAPORE (Sept 27): RHB is highlighting Ho Bee Land as a potential REIT and privatisation candidate with a sustainable 4% yield.
At the share price of $2.50, the stock is trading at a deep 48% discount to its latest book value of $4.78 per share, in line with the 30-60% discount seen among its mid-cap developer peers.
In an unrated report on Wednesday, analyst Vijay Natarajan says he believes there is room for this discount to narrow given Ho Bee’s minimal exposure to Singapore residential properties and healthy recurring income base.
“Ho Bee Holdings, which is 82.5% held by Chairman and CEO, Mr Chua Thian Poh, owning c.75% in the company. The major shareholder has been gradually increasing its stake with a recent purchase of 4.5m shares in Jul 2018. The strong major shareholder support limits any share price downside risk, in our view,” says Natarajan on the group as a potential privatisation candidate.
Noting that Ho Bee has been actively acquiring commercial assets in line with its strategy to grow recurring income, the analyst believes the group’s estimated $4 billion of investment assets is sizeable enough for a REIT.
This is especially considering the group’s latest acquisition of Ropemaker Place in June, which brings the group’s commercial assets to a total of seven in the UK with a total value of $2.4 billion.
“Ho Bee has stayed away from acquiring residential land in Singapore due to high land costs and limited supply. Post recent cooling measures, it may look at acquiring selective land if value emerges. While there are market concerns on slow sales at its three Sentosa projects, we believe downside risk from here is low, as the projects are carried at below $2,000 psf in its books,” notes Natarajan.
“Besides, it has already leased ~80% of unsold units, generating a rental yield of 2% and is in no hurry to sell, as the projects are not subjected to any additional penalties,” he adds.
As at 11:30am, shares in Ho Bee are trading 2 cents higher at $2.49.
