Results First Take: 1H21 Results – Robust rebound in core profits underpins a strong rerating

  • 1H21 revenues increased 47% y-o-y on the back of robust development property sales
  • Continue to report positive rental reversions for investment properties in Singapore and London
  • Key positives: Better-than-expected development property sales, positive rental reversions for investment properties, higher share of profits of associates/JV
  • Key negative: Lower-than-expected contribution from Singapore development property sales
  • Maintain BUY with a TP of S$3.80

(+) 1H21 Revenues increased 47% y-o-y to S$157.3m

  • Higher revenues in 1H21 mainly attributed to the group’s maiden master-planned community residential project in Australia
    • S$43.4m in sales at Parklakes 2 in Queensland
  • There was also S$6.0m of development property sales contribution from Singapore
    • Turquoise at Sentosa Cove; we expect more revenues to be recognised as sales are gradually completed
  • Rental income also increased 6% y-o-y to S$113.9m
    • Positive rental reversions in Singapore and London
    • Partially offset by rental rebates given to ancillary F&B tenants in Singapore and London

(+) c.700 units in Phase 2 of Tangshan project in China were handed over

  • Share of profits of associates and JV increased 77% y-o-y to S$60.8m
    • Share of profits of associates was S$10.8m, 65% lower y-o-y 
      • Fewer units were handed over to buyers at the Shanghai and Zhuhai projects
    • Share of profits of JV was S$50.0m, 167% higher y-o-y
      • Handing over of c.700 units to buyers at the Phase 2 Tangshan Project in China

(+) PATMI increased 21% y-o-y to S$109.2m

  • Higher PATMI mainly due to increased revenues from development property sales, rental income, and share of associates/JV
  • Partially offset by foreign exchange losses and higher income tax expense
    • Foreign exchange losses of S$1.2m in 1H21 due to the weakening of the AUD and EUR against the SGD
    • Income tax expenses increased to S$19.9m due to provision for deferred taxes on fair value gains on financial assets and investment property

(+) Earnings per share increased 17% y-o-y to 15.89 Scts

  • Increase in EPS as a result of a 16% increase in profit attributable to shareholders
  • No dividends were declared in 1H21, similar to previous years
    • Both final and special dividends will only be considered at the end of the financial year

Our thoughts
HBL’s 1H21 profits are trending slightly ahead of our projections for FY21. This was mainly due to the S$43.4m in contribution from development property sales, and the slightly higher than projected rental income. The positive surprise came from its master-planned project in Queensland Australia that contributed revenues of S$37.3m, earlier than we had expected. With a total of six master-planned developments in Australia, we believe that this segment will continue to drive revenues in the coming years. On the other hand, only S$6.0m in development property sales were recorded for Singapore in 1H21, slightly lower than we had anticipated. However, we understand that sales of the remaining 16 units at Turquoise, Sentosa, was brisk, and we could see more of the profits being booked into 2H21.

We are heartened to see that its rental income continue growing as a result of positive rental reversions at its investment properties in Singapore and the UK. Despite ongoing concerns of downward pressure on commercial property rents, HBL reported positive rental reversions at its commercial properties in Singapore and London. HBL also reported a slight uptick in its investment property valuation that was mainly due to capital expenditure spent at the properties.

We continue to remain positive on HBL given its higher-than-expected profits in 1H21, and we believe that the group will be able to maintain this momentum in the second half of the year. With the current buoyant residential market in Singapore and the international vaccination programme gaining pace, we do not rule out more development property sales at HBL’s Sentosa Cove projects. Its portfolio of well-located investment properties should also continue to enjoy high occupancy rates and positive rental reversions. Biopolis Phase 6 in Buona Vista has commenced construction and is anticipated to be completed by FY23. Given the resilience of its portfolio, and the improved optimism from it development property segment, we believe HBL’s P/B multiple of 0.51x still makes it a very attractive candidate for a potential restructuring (as highlighted in our previous report: Ho Bee Land: Diamond in the rough).

We will be maintaining our BUY recommendation with a TP of S$3.80.