Home Stock and Shares Hiap Hoe: Undervalued Property Developer

Hiap Hoe: Undervalued Property Developer

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With large developers such as City Developments and Capitaland trading at high price-earnings ratios, there is surprisingly good value to be found in Hiap Hoe Limited, a medium-sized Singapore property developer.

Hiap Hoe Limited (5JK.SI) is a subsidiary of Hiap Hoe Holdings (which also controls the listed SuperBowl). Its business is in property investment and development, focusing on the mid to high-end residential market. Its subsidiary Westbuild Construction is involved in construction works and is a Class 1 General Builder licensed by the Building and Construction Authority (BCA) of Singapore.


1) Luxury market niche

Hiap Hoe Limited’s niche is in the high-end freehold residential market, which has generally been fairly resilient throughout the global financial crisis of 2009. With the exception of The Beverly located in the Toh Tuck area, Hiap Hoe’s projects are mainly in the core central region.

Analysts are generally upbeat about the prospects for the high-end market, with prices expected to gain 5% to 10% in 2011, according to a report in the Straits Times. This is unlike the private mass-market segment, which faces competition for buyers from the HDB Design, Build and Sell Scheme (DBSS).

Indeed, according to caveats lodged with the URA, the average selling price of Hiap Hoe’s The Waterscape at Cavenagh has been stable and even strengthened up to Q4 2010. Average selling price was S$1,872 psf at launch and subsequently units were sold at closer to $1,900 psf. It was a similar picture at Skyline360 at St Thomas Walk, with recent sales breaching the $2,000 psf mark, from around $1,930 psf at launch.

2) Strong track record

Hiap Hoe probably has one of the highest gross and net profit margins (at about 40% and 25% respectively) among its listed peers in Singapore. As a result, its return on equity was an impressive 19.6% in FY09.

These can probably be attributed to Hiap Hoe’s uncanny savvy in acquiring its land bank at very attractive prices and its good reading of the property market. For instance, in Apr 2007, just as the property boom was taking off, Hiap Hoe picked up Clemenceau Court in prime District 9 in an en-bloc purchase at a bargain price of S$337 per square foot per plot ratio. A year later, Hiap Hoe and its sister company SuperBowl Holdings won the government tender for a hotel site in Balestier at the height of the market recession in Aug 2008, with a winning bid that is reportedly less than half what property analysts had expected.

3) Revenue and profit pipeline in the next few years

Although Hiap Hoe has sold 100% of Signature at Lewis and more than 70% of Watercape as of Q3 2010, it has only recognized about 42.5% and 5.8% of revenue from these 2 developments.

An analysis of Hiap Hoe’s project pipeline shows that in the next 3-4 years, about S$150mil in profits would be progressively recognized as its stable of projects become completed, while a further $60mil in potential profits from unsold units could also be realized.

Upon completion, the Zhongshan Park development would also add nearly $80mil to the company’s net asset value.

4) Future recurring cash stream from hotels

The Wyndham Group was appointed in Jan 2010 to manage the two hotels with a total of 795 rooms at Zhongshan Park, which is located near the Novena healthcare cluster and Novena Square business district. The hotels would thus likely generate a steady cash flow for Hiap Hoe when they open in 2014. Using conservative assumptions of S$150 daily room-rate, 70% occupancy and 20% gross margins, the hotels could probably generate for Hiap Hoe at least $3million annually in positive operating cash flow, not including additional income from F&B, MICE and lease of office space.


1) The Aspine

Despite Hiap Hoe’s sterling track record at building its land bank at attractive prices, it does have a blemish in the form of the S$138m en-bloc purchase of the Aspine condominium at Balmoral Road, as part of a 60:40 JV with SuperBowl. The transaction occurred just before the onset of the financial meltdown and the purchase price translates to $1,870 per square foot per plot ratio and a breakeven price of about $2,400. With prices of new launches in the Balmoral area hovering at just above $2,000 psf, the Treasure at Balmoral project is not expected to be profitable unless exuberance in the property market exceeds the height reached in 2007.

2) Potential market slowdown

The Singapore government introduced a series of anti-speculative measures in Aug 2010, the most significant of which was limiting to 70% of purchase price the amount of loans one could take on a second property. Property prices have however remained high, due to a confluence of low interest rates and the economic recovery.

Should these two conditions not persist and take the splutter out of the property market, small and medium developers such as Hiap Hoe could in the worst case scenario be left in a vulnerable position of having unsold units on the their hands, while competing with sellers in the secondary market.

3) High leverage

Like most developers, Hiap Hoe typically secures developmental loans for its projects. With interest-bearing liabilities at $267mil (compared to equity of $190mil), interest cover for 9M2010 was about 3.4 times. Hiap Hoe will thus be highly susceptible to any increase in interest rates as the global economy recovers.

Conclusion: Fair Value at 70c

Hiap Hoe Limited is perhaps one of the most undervalued property developer listed in Singapore. While not as large or high profile as SC Global or Ho Bee, Hiap Hoe outperforms its peers in metrics such as return on equity and gross margins. Its average annual profit is projected at $50mil for the next 3 years. Hiap Hoe is thus trading at an average 3-year forward P/E of just 3.8 times.

With Revalued Net Asset Value (RNAV) at just over $1 per share, a 30% discount to RNAV would value Hiap Hoe at about 70c per share. This corresponds to a target P/E of 6 and a potential upside of 60% from the current share price of 44c as of 4 Jan 2010. BUY.

Recent Developments

  • [Aug 2010] Hiap Hoe buys back 500,000 shares at $0.385 to $0.39 each
  • [Aug 2010] Hiap Hoe MD Teo Ho Beng buys back 41,000 shares at $0.41 each
  • [Mar 2010] Hiap Hoe issues 1 bonus share for every 4 existing shares
  • [Mar 2010] The Waterscape at Cavenagh is launched. 82 out of 200 units are sold within the first month
  • [Jan 2010] Wyndham Group is appointed by HH Properties to operate the 2 hotels at Balestier Road

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Last Updated ( Thursday, 06 January 2011 03:43 )  


0 #1 Property Inv 2012-09-15 03:59
Fantastic piece. I learnt a lot about the company thru your insightful piece. I came to this after searching on Google, and also found a new article to share here for Hiap Hoe investors :

HIAP HOE & SUPERBOWL: Stocks run up 48% & 38% ahead of hotels opening

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