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Wednesday, March 13, 2013

RHB Research raises target price of Hiap Hoe on sale of Ibis Novena


RHB Research raises target price of Hiap Hoe on sale of Ibis Novena

 Goh Han Peng

According to the media, Ibis Novena, located at the corner of Balestier and Irrawaddy roads, was recently sold by the Kum family, who last year was exploring the flotation of a hospitality trust that was subsequently called off. The transaction amount of S$150m for the 241-room 3-star hotel translated to per key valuation of S$622,000.

The biggest hospitality player in the Balestier enclave is currently Hiap Hoe (HH)/Superbowl, who between them own 2 hotels, the 405-room Days Hotel and the 384-room Ramada Singapore, together with some 120,000 sf of commercial space at Zhongshan Park. Days Hotel is currently operational while Ramada Singapore is expected to commence business in 1H13. 

Valuation upgrade for hotel assets. We have previously valued Ramada Singapore at S$600,000/key and Days Hotel at $500,000 per key. With the latest transaction and taking into account recent valuations by other hospitality operators, we now raise our valuation to S$650,000/key for Ramada and S$550,000/key for Days Hotel. This translates into a valuation uplift of S$18m, or 4cts/share, for HH. 

Healthy presales and low land cost mitigate residential headwinds. While we expect the recent round of cooling measures to impact on HH’s residential sales, its two major projects, Skyline 360° and Waterscape at Cavanagh, is currently 64% and 75% sold, respectively, with healthy pretax margin of over 40%. We have revised our development surplus estimate from S$220m to S$156m, primarily due to further sale recognition on presold projects and a longer sale period assumed for unsold units. 

Raising TP to S$0.79. Our RNAV for the stock now stands at $1.32/share. We reduced our discount from 50% to 40% given the higher commercial property weighting and limited residential exposure given healthy presales. Our TP of S$0.79 offers 26% upside. Buy maintained.

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