DBS Group Research analysts Dale Lai and Derek Tan have initiated &ldquo buy&rdquo on Ho Bee Land with a target price of $3.80.

The target price is based on a 40% discount to the brokerage&rsquo s revised net asset value (RNAV) of $6.28, write the analysts in a June 10 report.

 

&ldquo This represents [a] potential upside of 40%. The stock currently trades at price-to-net asset value (P/NAV) of 0.5 times and offers a yield of 4.0%, backed by stable cashflows from its office property portfolio,&rdquo they add.

 

Ho Bee Land has a portfolio that is positioned for the new economy with its seven prime office properties in London&rsquo s CBD. It also owns The Metropolis in Singapore&rsquo s One North.

 

The Metropolis, say the analysts, &ldquo will continue to see growth in the medium term. The asset is also a beneficiary of a pivot towards more suburban locations as companies adopt more flexible working arrangements,&rdquo write the analysts.

 

The group is doubling down its exposure in One North and is currently building a business park catering to the life-science and biotech sectors, which will contribute to earnings upon completion sometime in FY2023.

 

The group has been paying out an annual dividend of 10 cents per share over the past four years, translating to a dividend yield of 

3.8% to 4.5% based on its average five-year trading price, comparable to that of the yields paid out by Singapore REITs (S-REITs).

On that, Lai and Tan note that the group&rsquo s higher dividend yield and faster net asset value (NAV) growth has been largely ignored by the market, compared to its closest developer peer, UOL.

 

&ldquo Compared to the FSTREH and UOL, Ho Bee Land trades at a lower P/NAV multiple of 0.5 times despite offering a higher dividend yield of 4.0% and faster growth in shareholder equity over the past decade,&rdquo they write.

 

&ldquo We see further upside from (i) impending recognition of development profits, (ii) completion of Biopolis development to drive upside to NAV and a re-rating in share price,&rdquo they add.

 

The group is also expected to recognise profits from its pivot towards amassing a significant recurring income base, which will provide a boost to its earnings from the FY2021 to the FY2023.

 

&ldquo Ho Bee Land has close to $1.3 billion of development projects on the books (22% of assets), of which a substantial portion has been sold (mainly in China and Australia),&rdquo say Lai and Tan.

 

&ldquo Riding on the positive sentiment in the Singapore residential space, the group has launched the remaining unsold units at Turquoise in Sentosa, bringing a near term boost to earnings,&rdquo they add.

 

The low interest rate environment and ample capital for deployment opportunities have put Ho Bee Land as a possible take-over target given its &ldquo dominant portfolio characteristics and attractive discount to NAV&rdquo .

 

On this, Lai and Tan have identified three possible catalysts for Ho Bee Land to unlock value.

 

&ldquo Recent share buybacks have brought Ho Bee Land&rsquo s free float down to 25% and possible scenarios are (i) privatisation, (ii) securitization of its income-producing portfolio or (iii) conversion into a &ldquo stapled security&rdquo presents upside of 35%-60,&rdquo write the analysts.

 

 

On May 24, Ho Bee Holdings acquired 133,700 shares of Ho Bee Land for a consideration of S$339,598 at an average price of S$2.54 per share.

 

Ho Bee Land chairman and chief executive officer, Chua Thian Poh owns 82.5 per cent shares of Ho Bee Holdings.

 

This means the acquisition increased the deemed interest of Mr Chua in Ho Bee Land from 75.47 per cent to 75.49 per cent.

 

Ho Bee Holdings' preceding acquisition of Ho Bee Land shares was on March 23, with 15,000 shares acquired at S$2.42 per share.

 

Mr Chua is the founder of Ho Bee Group, and was appointed as the group' s chairman and CEO in 1999.

 

The company also listed on the SGX Mainboard in December 1999.

 

Since listing, Ho Bee Land generated 12 per cent annualised total returns for shareholders through to May 2021.

 

In FY20 (ended Dec 31), Ho Bee Holdings profit declined 59 per cent to S$137.1 million.

 

Excluding the net fair value loss on the investment properties of S$32.8 million in FY20, the fair value gain on investment properties of S$243.7 million and the related tax impact in FY19, profit for FY20 would have been S$169.9 million compared to S$99.6 million in FY19.

 

The group' s portfolio of properties in Singapore generated total rental income of S$100.9 million in FY20, contributing to 47 per cent of group revenue, up from 45 per cent in 2019.

 

On April 29, Ho Bee Holdings appointed Pauline Goh as an independent director.