There is a wave of companies reporting results traditionally in today’s busy market and I’ve got a few results to look at on my hands but let me pick Ho Bee Land for this time round.
Ho Bee Land reported a very impressive 3rd quarter net profit increase of 50.3% year on year while YTD they have managed a profit increase of 61.4% year on year. This includes a one off divestment for their industrial building they made in Jun which gives them a $6.9M gain on the book. However, if we compare them against last year, they also have a one off write back accrual which they have recognized in the 3rd quarter. So the two one-off would net off against one another for comparison purpose.
Do note that this impressive results was on the back of a decision by Mr. Chua to go via the rental income strategy given the muted outlook of the residential. None of the income came from the sale of a development property so far yet. This is important because while the company is waiting for the market cycle to recover, they are building themselves up to operate like a Reit where there are recurring income to support the company’s bottomline. They have been fast and furious in purchasing more buildings in the UK, which pushes their net gearing up to around 0.50x. It’s starting to get really high now compared to the other developers like Bukit Sembawang, CDL and Wing Tai, though evidence shows that their interest coverage ratio are still at a comfortable 6.3x.
In my earlier post, I estimated their full year EPS after these acquisitions to come in at around 10 cents. It does look like it is going to materialize. At current price, this gives them an earnings yield of around 5%.
The company does have a few launch in China and Australia which they will recognize revenue upon TOP sometime next year, so we can expect earnings to contribute positively into the book.
The company’s net asset value at $3.96 remains a huge deep value play at current price while the earnings are contributing positively into the net asset value over time.
The other thing that I am also watching out is on the provision of fair value on their development/investment properties for developers. Just yesterday, I saw UOL reporting a huge provision loss on their financial assets, not sure if this is related to their properties. There's also a couple of translation losses for companies like Stamford Land. Good thing I do not see anything for Ho Bee Land. I’ve also noticed none so far for Bukit Sembawang and City Development.
|UOL Financial Statement|
I like what I see as part of their evolving strategies to venture into the UK and building up recurring rental income to mitigate the poor outlook of their development properties.
The earnings yield is a tad too low for my liking, and if we compare against other overseas commercial properties reit, I think we are getting a higher earnings yield than this one. We'll have to see over time if it gets better.
This is a slow build up play where you get to buy the business and ignore the share price and over time it'll do well. But if you are expecting a firework, you may be disappointed by the development.
*Vested with 6,000 shares as of writing.