Published April 12, 2007

HPL stock up 14% on hopes of prime site redevelopment


THE stock of Hotel Properties Ltd (HPL) shot up 14 per cent yesterday as analysts re-rated the company on expectations that the authorities could revise the plot ratios around the prime Orchard belt where its key properties are located.

Shares in the mainboard-listed hotel operator surged to as high as $6.60 yesterday, a gain of 85 cents from the previous day's close at $5.75. The stock, which has risen 243 per cent this year, closed with a net 80 cents or 14 per cent gain at $6.55 on a strong volume of 6.2 million units, bucking the broader market's decline.

Brokers said yesterday's stock price surge was fuelled by a new Cazenove Research report which tagged an 'outperform' rating on HPL stock and a $10.18 price target - the highest target to be pinned on the stock to date. At the same time, DBS Vickers Research upgraded HPL's price target to $7.29 target, from $5.15 perviously. Previous targets, citing similar redevelopment potential for HPL's properties - The Forum, HPL House, Hilton Hotel and Four Seasons - have ranged around $6.

'HPL currently sits on 2.6 million sq ft of prime land-bank (with potential to increase to 4.6 million sq ft) and is well-positioned to take advantage of the current real estate re-rating cycle in Singapore,' the report by Cazenove analyst George Koh noted.

Cazenove assumed that the Urban Redevelopment Authority could enhance the plot ratios for HPL's land bank to 8 times, which it estimated would add a potential worth of $2.6 billion or $5.80 per share, a significant premium to HPL's current revised net asset value (RNAV) of just under $2.00 per share.

'We believe near-term newsflow is likely to remain positive with ongoing prime residential project launches, further en-bloc activities and potential policy changes in the upcoming Master Plan revision,' Cazenove noted. 'Despite the recent share price rally, HPL trades at only 56 per cent of our RNAV. We initiate coverage with an outperform recommendation and a potential upside of 77 per cent to our fair-value of $10.18.'

Besides redevelopment of the existing properties, Cazenove sees HPL's stock also being boosted by the successful en-bloc acquisition of Ming Arcade and the possible buyout of the neighbouring plot (owned by Moral Uplifting Society) at Cuscaden Road.

'HPL's ability to deliver consistent superior finishes to its high-end residential developments ensures premium pricing for its current projects - Beverley Mai and Horizon Towers,' the report said. 'Targeted for launch over the next 24 months, these two projects are expected to yield $530 million/$1.17 per share.'

The Cazenove report comes together with a DBS Vickers' report on Tuesday which raised its target price for HPL to $7.29, from $5.15 previously.