Ho Bee Investment

Kim Eng on 21 Mar 2012

Sell 50% of The Metropolis, make $300m. Home curbs appear to have spawned an office boom of late, judging from the take-up of recent launches. At Tanjong Pagar, Far East Organization’s PS100, integrated with its new Oasia Downtown Hotel, was 100% sold in a single weekend at $3,000 psf on average. Elsewhere, Paya Lebar Square and Robinson Square, both substantially sold by now, also achieved new benchmark prices of $1,700 psf and $2,800 psf, respectively. It makes sense for Ho Bee to consider selling, fully or partially, its 1.2m-sq-ft office space at The Metropolis to tide it over difficult times in the high-end residential market. After all, market price is currently about $1,500 psf versus its low breakeven of $820 psf.

A bonus for Sentosa Cove developers. Sentosa Cove boasts a few exceptions. A well-known exception is that foreigners are allowed to own landed homes there. A lesser-known exception is the exemption of provisions under the Residential Property Act for developers. This exempts developers from the two-year deadline to sell all units after completion, which is increasingly a concern for other high-end developers with completed unsold units given the severe slowdown in the segment. However, sales are still severely lacking in Sentosa Cove.

Bungalow sold for $39m. A bungalow in Sentosa Cove was sold for a record $39m last month. The 99-year leasehold landed property sits on an area of 15,930 sq ft, implying a per-square-foot price of $2,448. While the transaction is positive for the residential enclave in the east of Sentosa Island, we believe that the optimism is confined to the landed home segment where ownership is open to foreigners, and is unlikely to spill over to the non-landed segment where Ho Bee operates in.

Cheap but beware the headwinds. Ho Bee is trading at a discount of 57% to RNAV and 41% to book. We remain neutral on Ho Bee in view of near-term headwinds, locally and in China, where its exposure is now over 40% of its RNAV. Maintain Hold with a target price of $1.27, pegged at a 60% discount to its RNAV of $3.18.