My Lesson in Ho Bee

Based on my memory, in year 2007-8, Ho bee directors buy ho bee at $1.40 -$1.80. The financial crisis was beginning to hit.

Directors continued to buy ho bee at 70-80 cts, after it dropped more than half.

In september -oct 2008, The crisis really hit hard, and the newspapers headlines were filled everyday with negative news of" great recession", financial crisis".

Ho Bee share price fell further to 30-40 cts. At this price, Ho bee nav is at 70-80cts. The market cap was about $210 M. (700 M shares x30 cts.)

I once read that in the year 2009, Ho bee has many projects fully sold going TOP. When the projects TOP, Ho bee will receive the balance of the 80% of the project sales. How much is this? The jewel in the crown was The Coast at Sentosa. 300 units (land size about 2000 psf) fully sold at $1800 psf . That means each unit cost about $4M. The expected revenue based on the Coast = $4m x 300 = $1.2B. However, we must net off the 20% downpayment which has been included. Therefore, the revenue will be reduced to $1B.

How much is the expected profit? As ho bee usually has a profit margin of 30%. I expect the profit from The Coast to be $1B x 0.3 = $300M. If a company market cap is $200 M, the net profit is $200 M, then the PE =1. If the Coast can provide this much profit, the rest of the projects( also mostly sold) will add more profit to it. This make ho bee a terrific buy at 30 cts.

As expected the projects TOP and provided huge cash flow for ho bee. The share price rose from 30 cts to $1.60. The earnings per share rose to 30 cts. which make this stock at 30 cts a PE of 1. This lesson highlights the importance of PE. At $1.60, the pe is now 5-6. If next year, the profit fall, the share price may not be sustained at this level. (note that there are not many projects top next year)

A few points to note is that if the projects are mostly not sold, i will be concerned and not buy as well even if ho bee fell from $2 to 20 cts. But as we have read in year 2007-8, the projects were mainly sold and at high prices. Thus, the shareholders who sold Ho bee must have forgotten what is the Ho bee story. It is important to Stay tuned to the stock and the story in the business.