Wednesday, November 16, 2011

Ho Bee earnings potential

I have added on shares of Noble Group & Ho Bee to my portfolio.

Acquired Noble Group when share price was battered down heavily due to the resignation of CEO Ricardo Leiman and the company first quarterly loss in 14 years. Buy when there is fear and sell when there is greed!

Altough we are facing the eurozone crisis and China risk of default in loans, I am not sure how markets will react to Noble Group in the short-mid term. But I am prepared to average down when Noble Group is priced near to $1 per share. After all, commodities is cyclical and there will be a time the cycle moves upwards. We can review past historic movement from the available commodity indices.

On the other hand, I purchased shares of Ho Bee due to 3 key reasons:


1. Attractive Valuation

P/E is 2.87x using today's last done price of 1.25. P/B is 0.56x @ NAV 2.22 per share. NAV was increasing in the past 5 years but Mr. Market is not rewarding the business. Comparing peers and past historic P/E plus the fact that private home sales are falling, in my opinion, the valuation is attractive. I am thinking of buying in batches when chances arise

2. Earnings Visibility

Regarding property development, in accordance with intepretation of Financial Reporting Standards (INT FRS 115), the revenue for the sale of units in One Pemimpin industrial project will be realized by middle of next year 2012 upon completion of construction. To-date 94% of the 115 strata units are sold.

The iconic One-north commercial property (the Metropolis located at North Buona Vista Drive) is expected to complete in second half of 2013. It houses the region finest research facilities and business parks. Expect MNCs (multi-national corporations) to be the tenants.

One-north is well connected by major expressways, roads and Buona Vista MRT station. Thus, revenue should be progressively recognized when leased out (personally, I expect more than 90%). By then, office rental is forecasted to command higher psf based on historic figures. Together with the future launch of Pinnacle Collection, I remain optimistic when macro conditions and property climate improve - driven by the influx of wealthy Asia buyers such as Indonesians and the Chinese.

3. Joint Venture project with Yanlord

It's good to hear that Ho Bee is sniffing out opportunities in new overseas markets. To enter into JV with Yanlord, it helps to mitgate country risks since credit controls are tightening with current falling property prices in mainland China.

Yes, there are investment risks. However, China is driven largely by local consumption with the inner tiers yet to be fully exploited for growth. Houses of higher standard could be in demand with the middle classes whom might have been yearning the luxurious lives. Therefore, I will view it as a strategic move by Ho Bee to buy up parcels of land with Yanlord and Shanghai YOUYOU to buy 2 prime residential sites in Zhuhai. Developing it further may unlock the potential, leveraging upon the expertise of her partners.

If we talk about the financials, gearing has been significantly reduced in FY2010 - with reference to ShareInvestor, debt to equity ratio is 0.58x. Others like total shareholders return, net margins to ROE paint a positive picture compared to the rest of the high end Developers.

Due to the sluggish sales of Seascape and Turquoise, am not expecting fantastic financial results in the short term. My horizon is 2013 with One North fully built and leased out - perhaps Ho Bee may have undertaken new exciting projects. I have faith in the management helmed by Mr. Chua Tian Poh, the Group CEO of Ho Bee.

6 comments:

  1. There's one thing I can say about you - you have guts!

    I am impressed. But then, your investment in "risky" S-chip C&O pharma has paid off!

    So you have a track record to back you up :)

    I am in my "tortise" phase now (although I am wishing I can be a braver hare!)

    ReplyDelete
  2. Hi SMOL

    Thanks. No pain, no gain - understand the risks. :) By the way, are you using whats app?

    We can chat on iphone - can email me your details - ktservices@mail2world.com


    Cheers,
    Ken

    ReplyDelete
  3. Ho Bee looks good to me as well but in comparison, i would choose Wing Tai to Ho Bee. A number of reason for my choice.

    1.NAV 2.49
    2.Unlike Ho Bee, it has a retail arm as well hence cushioned via diversification.

    ReplyDelete
  4. Opps! I low tech. No smart phone; only Nokia normal mobile phone.

    I will return to Singapore end of 31 Dec 2011. Then can chat with you all on LP's cbox. Now I am 6 hours behind Singapore time in Athens.

    Cheers!

    ReplyDelete
  5. Hi Evilbdboi

    Thanks for your views.

    On the other hand, being diversified, there may be a lack of strategic business focus should internal resources (manpower, finance, value chain etc..)spread too thinly. I am not sure the percentage of revenue in each division and how the resources are allocated unless we could see potential synergies & value creation unit-to-unit.

    Additionally, the retail arm may be exposed to the volatility of the current economic climate which may impact Group earnings?

    If I am not wrong, Wing Tai carries franchises such as Yoshinoya. A trip down to any Yoshinoya outlets could see that it is not well maintained unfortunately. Maybe I am unlucky - once I saw the Yoshinoya in Plaza Singapura flooded with dirty sewage water (kudos to the staff still maintaining the friendly disposition despite the area being very smelly!). The other time I saw poor conditions for the seats and tables in Harbourfront. Store traffic? not sure....

    I think Wing Tai excel in their core business - clothing & footwear. And I agree, if one is looking into diversified areas and taking into considerations like the one above, it could be a good long-term investment :)

    Good luck!

    ReplyDelete
  6. Hi SMOL

    How's Athens right now? Very chaotic?
    Protests on the streets always?

    Have a safe trip back to SG :)

    ReplyDelete

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