Broker's Take: RHB issues 'buy' call on SingHaiyi on strong US$, sponsor backing

RHB on Wednesday initiated coverage on small-cap property developer SingHaiyi with a "buy" rating and a target price of S$0.19.

RHB was encouraged by rising US property prices and a stronger USD versus the Singapore dollar, as well as SingHaiyi's strong sponsor backing.

At 9.49am on Wednesday morning, SingHaiyi was down 2.1 per cent at S$0.141. It has fallen 25 per cent from a high of S$0.188 last April.

RHB noted that SingHaiyi has a one-third RNAV (revalued net asset valuation) exposure to US properties, including an Ohio retail mall, a San Jose commercial development and a San Francisco prime residential estate.

SingHaiyi is known for its investments in undervalued assets in the US. The group bought three US properties at steep discounts to their market values over the past two years, some as large as a 77 per cent discount to net book value, with a view to enhance their values via redevelopment.

Two of the assets are in the San Francisco Bay Area.

RHB analysts Ong Kian Lin and Ivan Looi expect these purchases to contribute meaningfully to earnings over the next two to four years.

SingHaiyi also has strong backing from a sponsor, American Pacific International Capital (APIC), which has over 13 years of experience in the US.

Its management includes Neil Bush (son of the 41st US President George HW Bush) and Gary Locke (former US ambassador to China).

APIC is committed to offering all the US projects it encounters to SingHaiyi at the same cost.

"(This) differentiates it from other SGX-listed developers, whereby none of them have any US backing," the analysts said.

"We estimate that APIC has in excess of US$250 million to 300 million US assets, which may potentially be injected into SingHaiyi. However, this may take a few years and a faster option may be to consider merging the US operations into the group. With the uptrend in US property prices, this will be the quickest way for SingHaiyi to scale up its US exposure in our view."

"We expect SingHaiyi to pay dividends as it stabilises its investment properties and enlarges its recurring income base. We forecast a maiden dividend of 0.3 cent from FY16 (March) onwards, amounting to a modest dividend yield of 2.1 per cent. This can grow further in subsequent years as SingHaiyi enlarges its recurring cash flow," they added.