In line. 4Q08 core net profit of S$15m forms 15% of our full-year estimate and consensus. FY08 core net profit of S$94m forms 96% of our forecast. A DPS of 2cts was announced for FY08, yielding 6.5%.

Lumpy revenues due to conservative accounting. Revenue for FY08 fell 49% yoy to S$302m as recognition of residential presales under the Deferred Payment Scheme has been deferred until projects receive their temporary occupation permits. The bulk will only be booked this year. Hotel and rental revenue, which made up less than 10% of the total, remained flat in FY08.

Significant provisioning should not be far away. Ho Bee incurred fair-value losses of S$3.7m in 4Q08, with S$2m for the impairment of residential properties. We suspect this was for The Pinnacle at Sentosa, for which IOI Property also wrote down value in its recent results. The quantum of provisioning in 4Q08 was immaterial. Some listed developers had already aggressively written down their asset values in the quarter and we expect Ho Bee to follow suit in FY09.

Gearing up to de-gear. Net gearing remained high at 1.21x. But with five projects due for completion this year, management hopes to receive over S$950m of proceeds from 1Q09 to 3Q09. Letters have been sent to buyers, urging them to seek financing. The level of potential defaults could be a crucial determinant of Ho Bee’s financial sustainability. Assuming asset write-downs but barring major defaults, its balance sheet should improve, with net gearing edging towards 0.7x at end-FY09 on our estimates.

Earnings cut. We lower our core FY09-10 EPS estimates by 10-27% to account for slower inventory turnover and lower ASPs. We also introduce FY11 estimates.

Trough valuations with potential catalysts from presale receipts. Our end- CY09 RNAV has been lowered from S$1.57 to S$1.26. Ho Bee trades at its historical low of 0.2x P/BV (0.45x in 2003). Assuming selling prices fall by 50% from their peak and land-bank values are written down consequently, we estimate its adjusted P/BV at 2003 levels. Pessimism on the stock appears to reflect some insolvency risk. Our target price, still pegged at a 50% discount to RNAV, has been lowered from S$0.76 to S$0.63. Maintain Outperform nevertheless. The successful collection of presale receipts and a better balance sheet could be re-rating catalysts.