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Saturday, January 9, 2016

Recent Action - Ho Bee Land

This will just be a short update into what I have been accumulating so far.
 
I have written a couple of articles in the past about the company that I believe will do well for the company. If you are interested, you can find them here:
 
 
 
 
 
 
 
The past week has been rather brutal in the market. I think we've lost about maybe 4% in the market just about 5 days trading into the new year. While most people have been busy scooping up popular blue chip shares such as DBS, OCBC, Singtel, Keppel, SembCorp, to name a few, I've gone into a different direction by accumulating into my existing position for HoBee Land for 10,000 shares at a price of $1.97. This is funded from both the internal funds and some divestment which I have made (will talk about this in my portfolio update).
 
There's not much different to the thesis I've mentioned to the earlier article but I'll try to see if I can present it differently.
 
We know just about how much acquisitions they have made over the past years and sometimes it can be very confusing for the market to digest them especially if these earnings are not yet "realized". So what I did was to try and project these earnings into the next few years and try to see if there are value in the current share price. The highlight is probably on Hobee trying to repeat what they've done back post 92s era where the UK market has somewhat bottomed after a cycle and they went gone into the market at an opportune time.
 
Their latest 9M earnings have shown how much these rental income will contribute to their bottomline. These did not yet include the contributions from their latest two acquisitions of the 110 Park Street and Apollo / Lunar House at Croydon. If you read my previous article on Hobee, you would have known that their latest 2 acquisitions are highly accretive because not only are they getting a recurrent lease longer but they are also reversionary in nature due to the low passing rents. The current cap rates they are signing off for is currently at 4.5% and 5.35% but I expect this to be revised upwards in the future organically.
 
I'm expecting forward earnings based on only rental income to come in next year at $70 millions, which indicates an earnings yield of about 6%. They still have their development properties both local and overseas which has not yet been included yet should they materialize. The key play over here is the reversionary nature of those rental income upwards over time so we can expect an even higher cap rates they have. Any sales towards their development properties will be a bonus if there are any.
 
Final Thoughts
 
As I've mentioned in the past, I'm looking at this investment as a long term play where the value will only be extracted when they are given time to shine.
 
I think as a company, their recurring income as an operating cashflow are there to support the business when their development properties are facing some headwinds but much will depend on their strategic move into the UK and see if they will be successful once again.
 
A commercial reit offing may be on the wild cards should they decide to recycle the capital given the huge investment properties value they have on their books now. The company has been repurchasing their share back in the past few months and have now held about 73.4% but I reckon privatization will not take place in the near term. Since it is a good company, I won't be in the rush wanting the company privatized anyway.

*vested 16,000 shares as of writing

12 comments:

  1. Thanks for sharing your transaction.
    I have been following your blogger for a while. Agree with you that most people don't have positive view on 2016 economy. With STI dividend yield over 4%, more opportunities will occur.
    I noticed your portfolio is heavily invested with only 50K being cash. How do you re-balance your portfolio to take advantage of attractive counters?

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    Replies
    1. Hi Unknown

      I try to keep most invested because cash to be honest is a drag on the overall return if we are talking about the long term. While it may play a big part when it comes to opportunity during recession, I feel that's an amount I am comfortable leaving my money with the STI hovering around 2700+ region, not exactly expensive in my opinion. If STI were at 3,500 now, I probably liquidate a few and move into cash.

      Delete
  2. Hi B,

    I think in times of a sudden bear, it's better to scoop stocks where u r most familiar, arrayed before etc nd not the popular ones!

    Banks and O&G r so volatile n frankly i m not too sure if entry points now signal the right time! Kep n semb corp - 13 rigs in total stuck!

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    Replies
    1. Hi Rolf

      I guess no one can ever understand Keppel business very well since they operate as an conglomerate. The downside as you have mentioned is a lot more than what people might think. I think gone are the days when Keppel can go back to $11 and people need to stop thinking that they can potentially get a multi-bagger buying at this price.

      Delete
  3. arrayed = typo. I mean traded before.

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  4. what are your thoughts compared to wingtai (WT)? it is similarly priced interms of NAV and P/B, PE, ROE, yield...

    PS: not vested in either.

    ReplyDelete
    Replies
    1. Hi fooztreasures

      Wingtai has the most attractive valuation out there right now but there are visibly no growth or plans to grow at all with their existing they have at hand.

      I think precisely due to these reasons, the share price is languishing low with no power.

      However, if it drops further, it might be worth to take a look further.

      Delete
  5. the chairman bought back some shares... so thats a good sign

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    Replies
    1. They are a family business after all.

      The chairman has been doing that all his life accumulating more shares while price is on weakness so I won't be too surprised on it.

      Delete
  6. trying to do abit of research.. on the exposure WT and HBL have on their unsold units. Developers who bought land after the implementation of ABSD in Dec 2011 will need to lower their prices to move all their units by their five-year deadlines, which will kick in from 4Q16.

    WT has 243 unsold residential units (61% in the OCR).
    i couldnt find any info on HoBee. do they have exposure to the sgp residential ptty?

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    Replies
    1. Hi fooztreasures

      You can take a look under the balance sheet at their development properties there. Since HBL has now converted these completed units into leasing at the moment, they might be classifying them under investment properties.

      Having said that, HBL will not be under the QC penalty which other developers are facing at the moment like Wingtai. In this case, they do not have to rush to lower down their price in order to move the completed units. I think they are going to hold on until the next cycle kicks in.

      Delete
  7. hi there,

    i'm curious to know if the weakening pound will affect HBL's investments in the UK? Also, what do you think of the looming referendum on Brexit, and will it affect HBL?

    ReplyDelete

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