Ho Bee’s revenue plunges 43% to S$56m in 3Q11

Weak sales starting to show
While 3Q is consistent with our expectation (below consensus), weak development sales have become more apparent. Some major projects in Sentosa have been completed, but remain largely unsold. Earnings this quarter were propped up by divestment gains.

Development sales plunged yoy
Revenue in 3Q11 fell 43% yoy as development sales recognition began to decline considerably. Sentosa projects in Seascape and Turquoise have been completed but remain 56-74% unsold. Our last check with management suggests these units may be released for rent. The Pinnacle, its last site in Sentosa acquired at the top of the market, has yet to be launched. In total, we estimate Hobee has 400-450 unsold units on its books.

Propped up by commercial properties
3Q11 was propped by a S$13m divestment gain from the sale of three floors in Samsung Hub. By mid-2012, proceeds from the sale of One Pemimpin (115 units of industrial space) should also show up. Hobee has been rationalising its investment property portfolio, following its acquisition of 1.2msf of office space at one-north.

Lacking catalysts
Net gearing remained low at 0.24x, giving Hobee the debt capacity to fund capex. It recently added Zhuhai (20% stake) to its China landbank in a JV with Yanlord and Shanghai You You. Valuations are also undemanding at 0.6x P/BV. However, price catalysts are lacking, in our view, with its exposure to the high-end market an overhang. A more protracted lull in demand for China properties and Singapore office space will add to valuation pressures.