HPL has already secured the go-ahead from authorities to redevelop three of Orchard properties that are in the same vicinity into a 1.23 million sq feet mixed-use development. The three properties are: The Forum, voco Orchard Singapore and HPL House.
"Despite their age, all three properties occupy large, highly valuable, predominantly freehold land parcels in Orchard. As such sites are becoming increasingly scarce, they present a compelling opportunity for value creation through redevelopment and repositioning," the analysts figure.
Tan and Foo figure that the redevelopment can be worth $5.2 billion, by assuming that 30% of the space be used for retail, 25% for residential, 20% for office, 20% for hotel and 5% as a performance theatre.
This redevelopment value, if true, is almost three times HPL's current book value. If so, this will translate to a 37% uplift in RNAV to $10 per share from $7.30 now, and viewed as "a major value-unlocking catalyst that could potentially drive HPL's share price higher," according to the DBS analysts.
See also: CGSI slashes CDLHT’s target price by 18% to 87 cents on hospitality headwinds
"On an as-if basis, at an assumed 50% discount to RNAV, in line with mid-cap property peers, our fair value of $5 implies almost 40% upside from the current share price.
"These possibilities are yet to be priced in at current valuation," state Tan and Foo, noting that HPL is now trading at close to -1 standard deviation (s.d.) of its five-year historical P/NAV ratios of 0.87 times, which suggests the market has yet to fully price in the upside from the redevelopment of its Orchard assets, or a potential sale of HPL.
Noting that Ong's children are not actively involved in HPL, this lack of a clear succession means the door is open to potential changes in the company's ownership structure.
See also: Analysts encouraged by Sheng Siong’s FY2025 expansion plans
"HPL's valuable portfolio, including its prime Orchard Road landbank poised for redevelopment, along with its hospitality and commercial assets, are particularly appealing for those looking to establish a presence in the Orchard area.
"Against the backdrop of its upcoming major redevelopment plans, any strategic sale could unlock significant value for shareholders," state the DBS analysts.
HPL shares last traded at $3.70, up 4.23% year to date.
