Hiap Hoe

It was reported today that Hiap Hoe intends to preview its 48-unit Treasure@Balmoral and the remainder units of Skyline 360 this weekend at Raffles Hotel. This is a good sign as management realizes that the buying enthusiasm now is a good opportunity for Hiap Hoe to soft launch its projects, despite the fact that the company has not built any show flat.

Taking the net saleable space of the Treasure site (estimated 79,800 sq f) and dividing it by 48 units, I arrive at 1,662 sq ft as the average size per unit. It was also reported that each unit would sell at least $4m, which may mean that Hiap Hoe probably intends to sell units here at an average of about $2,300-2,400psf, or higher.

It is probably hoping to ride on the keen interest in recently launched Urban Suites and The Laurels, which were sold at more than $2,500psf. While not as near to Orchard as Urban Suites and Laurels, Treasure's site has the advantage of being near to Raffles Girls' School, and may therefore attract end-users.

If the response to Treasure is good, it will be a pleasant surprise, as Hiap Hoe's break-even for the project is rather high - probably around $2,300 psf, and I had only assumed a selling price of $1,900 psf in my estimate of Hiap Hoe's future earnings and RNAV. However, I suspect sales figures may not be that good as the price is a bit steep and the absoulte price is a tad daunting. Hope I am proven wrong, though.

Meanwhile, I understand Waterscape sales figure has reached 110 units by last Saturday. Hiap Hoe bonus shares will be credited into shareholders' accounts these few days. With more shares in free float, it could be a buying opportunity especially for buyers of bigger quantities. However, if there are many short term players who bought the stock mainly for the bonus issue, selling pressure may depress the stock price temporarily.

Sumer, great update. Are you from the property sector? My punt did not turn out too badly. This is for keeps and let the good news continue to flow.. Cheers

Hi Sgmarket, No, I don't work in the property sector. I am a full-time investor. Apart from Hiap Hoe, the other property stock which I like and own is Roxy-Pacific. It's also very well managed, seen from its clever land purchases, the niche market it chooses to be in (mainly smaller projects meant for upgraders who want properties with freehold status), and the quick sales of their projects.

However, compared to Hiap Hoe, its discount to RNAV is not as huge, and its projects are less prominent, and hence will even attract less big boys' attention (if Hiap Hoe is attracting at all, actually).

I also like Soilbuild but own very little of it. It's easy to analyse property counters, perhaps the easiest among all the sectors. This is because the important figures are open to all to see -- land purchases, sales figures and sale prices (just walk into showrooms or call agents), etc. You just have to do a little leg work, and sit down and do the maths. The other property-related company I like and own is Design Studio. In other sectors, I like and own ECS and Stamford Land, and a little bit of Hiap Seng.

Hurrah! the bonus shares have been nicely credited into my CDP account:laugh:

Hiap Hoe previewed its Treasure at Balmoral last weekend at about $2,550-2,800 psf. This is way too high for a project in that area for now, and as expected, nothing was sold. I think a more reasonable price at this time would be $2,000-2,200psf. Apart from that, the marketing was a tad too mild, with few agents advertising the preview (the agents probably know better about the incorrect pricing) and no showflat built.

Meanwhile, I understand that a few more Skyline units were transacted, and this probably brought the total units sold to about 35-40%. In the case of Treasure, Hiap Hoe probably has no urgency to sell the unites here because:

(1) it has only a 60% stake in the project, ie, 24 units out of the 40, and it does have to consider Superbowl's (which has a 50% share in Treasure) intentions; and

(2) Having sold about 45-50% of combined Waterscape/Skyline units, it's probably in no hurry to sell Treasure at a loss (its breakeven is about $2,300-2,400psf) because like most other developers, its landbank is depleting and if it replenishes that in the current market it will be paying hefty prices anyway.

Treasure is its last plot of undeveloped land (excluding Waterscape and Skyline). Post-bonus issue, Hiap Hoe's RNAV, according to my estimate, is about 90cts per share. This compares well with other smaller niche developers like Roxy, Sing Hldgs, Heeton, etc.

In fact, I think it probably has one of the biggest discounts to RNAV among them, even assuming a $2,000psf selling price for Treasure (which is the price used for my estimation of its RNAV).

Just like Sing Holdings, which has a single project (The Laurels) seen bringing in a substantial net profit of about $150m, Hiap Hoe also has its big-ticket winners in Waterscape (about $170m gross profit) and Skyline 360(another $80m).

The revenues from these 2 projects will be recognized over the next 3-4 years, and this should give the stock price support, as quarterly earnings announcements will show the gradual recognition of revenues and profits from these 2 main projects. Compared to its present market capital of $250m, these gross profits are indeed rather substantial. And we are not even counting its other potential big winner - the 2 hotels at Zhongshan Park in Balestier, built on land bought at a very cheap price.

Hiap Hoe announced yesterday a drop in Q1 net profit from $6.9m to $3.9m. This was due to a mismatch of cost and revenues and nothing to worry about. The group's selling expenses surged from just $21k in Q1 2009 to $6.5m in Q1 2010, mainly due to the sale of a good number of units at Waterscape and Skyline.

The company, while recognizing agent fees for the sale of Waterscape units, has yet to book a single cent of profit from this very lucrative project, as construction has not yet commenced. In other words, profit from this project has been postponed to future quarters while expenses are brought forward to this quarter. Hiap Hoe's cash holding, however, jumped significantly, from $3.5m in Q4 2009 to $53.4m, mainly because of proceeds from TOP projects Cuscaden Royale and Oxord Suites (probably due to IAS scheme).

Another positive is that current liabilities was reduced from $58.8m in Q4 2009 to just $1.7m in Q1 2010. Total net cash flow for the period was $122.5m. The company updated its sale figures for Waterscape (more than 65% sold) and Skyline 360 (more than 40% sold).

It is a good thing that Hiap Hoe has sold a substantial quantity of its condo units as fears are growing that the luxury property market this year may not be as buoyant as analysts expected earlier. I believe my calculation of the company's RNAV of about 90cts is conservative, as Zhongshan Park could be worth more than my estimated valuation. However, in view of uncertainty in the sovereign debt market and the volatility in global stock markets, and the prospect of a slowdown in the property market, I would stick to this RNAV estimate for now. Otherwise, a RNAV of as much as $1 would have been in order.