HEETON: Quiet beneficiary of Gaobeidian goldmine

Excerpts from RHB Research report

Analyst: Goh Han Peng

Heeton Holdings (HTON SP, Not rated)
Quiet beneficiary of Gaobeidian goldmine

We believe Heeton Holdings is one of the few home-grown boutique developers poised to benefit from the recent pick-up in residential property transactions. The Group has completed a string of developments recently, from joint venture projects such as KAP and KAP Residences, 121 Collection on Whitley and its wholly-owned Onze@Tanjong Pagar.  Heeton is progressively recognising profit on its JV project near Seletar Mall, High Park Residences, which has been fully sold. Photo: Company The developer will also be completing other projects over the course of 2017, such as Westwoods Residences, its 20:80 EC development with Koh Brothers (86% sold), Rezi3Two and Trio. The Group is also recognising profits progressively on its joint venture project with Chip Eng Seng and KSH, namely the 1390-unit High Park Residences (20% stake), which has been fully sold. Heeton recently: 44 c Heeton Holdings' shares could be worth SGD0.72 per share assuming a 50% discount to its RNAV.  These project completions will bring in a steady stream of cash and enable the group to capitalise on the improving market sentiments to clear its remaining inventory.

Eric Teng has been CEO of Heeton since Jan 2016. NextInsight file photo. Heeton has also cleared the qualifying certificate overhang, having disposed of its prime project iLiv@Grange via a sale of company shares in the development in September 2016, and it is currently in the midst of completing the disposal of remaining units in the Lumos, another luxury development at Leonie Hill.

Post this sale, the Group will have a more liquid balance sheet to pursue expansion of its hospitality portfolio.

Heeton also boasts a SGD300m investment property portfolio, which include Tampines Mart, Woodgrove and a 50% stake in Sun Plaza, providing the group with a source of recurring rental income and re-development opportunities in case of Woodgrove and Tampines Mart.

The last icing on the cake is its 7.5% stake in the Gaobeidian project in Hebei province.

Spearheaded by KSH and Oxley Holdings, the consortium in this 533-hectare project has landed on a goldmine as Beijing has designated Xiongan New Area, about 100km south of Beijing, as the third special economic zone.

Property prices in Hebei’s nearby areas has skyrocketed from CNY4,000 psm to as high as CNY18,000 psm.

We believe Gaobeidian project could be a key beneficiary given its proximity to the new SEZ and its direct link to the high speed rail to Beijing. 

At SGD0.45, Heeton is trading at a steep discount of 58% to its NAV of SGD1.06. However, just factoring in its share of profits from High Park Residences (~SGD30m) and Gaobeidian (SGD96m) will raise its NAV by another SGD0.39/share to SGD1.45.

Given the large discount to NAV versus its peers, we reckon that the stock is undervalued. While the large cap peers are trading at 20% discount to RNAV, Heeton Holdings' shares could be worth SGD0.72 per share assuming a 50% discount to its RNAV.