HPL has already secured the go-ahead from authorities to redevelop three Orchard properties in the same vicinity into a 1.23 million sq ft 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 and predominantly freehold land parcels in Orchard. As sites like these become increasingly scarce, they present a compelling opportunity for value creation through redevelopment and repositioning,” the analysts figure.
According to the DBS analysts, HPL is a “strong contender” to undertake a new meetings and conventions hub in the downtown area. This additional space is meant to be part of the government’s overall target of boosting tourism receipts from meetings and conventions from 4% to 10% come 2040.
There are already significant meetings and convention spaces at Marina Bay Sands, Suntec City and Expo, but less so in the Orchard Road neighbourhood.
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“We speculate that the new convention centre could find a seat along the Orchard shopping belt — potentially HPL’s Orchard assets, in other words, The Forum, voco Orchard Singapore and HPL House. A convention centre would complement this project, especially given its proximity to many hotels, including Pan Pacific Orchard and St Regis,” the DBS analysts figure.
Tan and Foo figure that the redevelopment can be worth $5.2 billion, by assuming that 30% of the space is used for retail, 25% for residential, 20% for office, 20% for hotel and 5% as a performance theatre.
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This redevelopment value, if true, is almost three times HPL’s current book value. If so, this will translate to a 37% uplift in revalued net asset value (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.
“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 ratio 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.
Investors, however, ought to know that there is no active coverage of HPL shares, which are typically thinly traded, with daily volumes hardly crossing 100,000 shares on most days.
If Tan and Foo are right, interest in HPL should pick up. They point out that 81-year-old 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.
“HPL’s valuable portfolio, including its prime Orchard Road landbank poised for redevelopment, along with its hospitality and commercial assets, is 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.
