Post meeting management recently, we take comfort knowing thathealthy unbilled sales underpin Ho Hup’s earnings visibility, though construction orderbook replenishment falls below our expectations.Maintain BUY with a lower SOP-derived fully-diluted MYR1.38 TP (from MYR1.77 undiluted, 53% upside) as we fine-tune our assumptions for its construction orderbook and update the GDVs of its various projects.

Healthy unbilled sales. We recently met with management and take comfort in knowing that >90% of Phase 2B (1,120 units of service apartments) under Ho Hup Construction’s (Ho Hup) joint-venture (JV)with Malton (MALT MK, NR) (launched in June-July) has been booked. Without considering Phase 2B’s potential unbilled sales, the total unbilled amount of its construction, iincluding the recently awarded design and construction job for a proposed Hulu Terengganu polytechnic (its entitled portion is estimated at MYR85.7m), stands at about MYR368.2m. Its own property development is MYR248.5m. This ought to provide good earnings visibility for the next two years.

Pushing the landbank replenishment pace. Ho Hup is acquiring a 52.5% effective stake in Intct Corporate Approach SB (ICA), which has the right to buy a 429-acre leasehold agriculture land in Kulai, Johor, for MYR107.3m. The land is being proposed for a township developmentover 15 years from 2016, but the aster plan and estimated GDV are not known yet. We have yet to factor in any contribution from the potential land rights increase , as the proposed ICA investment and land rights acquisition are subject to its shareholders’ approval. If this is approved, Ho Hup’s total landbank/rights would increase to 494 acres.

Earnings revisions. Our initial MYR300m orderbook replenishment assumption might be somewhat optimistic. This is because YTD orderbook replenishment only made up 28.6% of our estimates. We adjust our FY15F-17F earnings by -0.4%/-0.7%/-3.8% respectively as we fine-tune our construction orderbook replenishment assumptions. Key risks include: i) weaker-than-expected take-up rates for its property development projects, and ii) a failure to replenish to its orderbook.

Maintain BUY. Our fully-diluted SOP value per share is revised to MYR1.38 (from MYR1.77 undiluted, MYR1.48 fully diluted) following our earnings revisions and latest GDV update. We switch our TP to the fullydiluted SOP value as it better reflects the underlying value per share,given that preference shares can be converted at no cost, although Ho Hup’s warrants are currently out of the money.

Land bank diversification. Ho Hup announced two proposed mixed development projects in Sabah and Johor over the last three months. Its strategy has been partnering with an experienced JV partner and acquiring stakes in companies thathave land rights in these deals. We opine that such a strategy would help the company to expand its landbank/rights more effectively without incurring huge upfront land acquisition costs. Landbank replenishment is important because Ho Hup’sexisting 10-acre landbank for own development (Parcel s A and D) and joint development with Malton (50 acres) are expected to be fully developed by 2018. Proposed development in Sabah is expected to be on track. Ho Hup has a 52.5% effective stake in Golden Wave SB (GWSB), which has the right to develop a 5 acre prime commercial leasehold land in Kota Kinabalu, Sabah. The condition is to construct, complete and deliver a bus terminal and car parks to Dewan BandarayaKota Kinabalu Holdings SB (DBKK) on an adjacent piece of land at a cost not exceeding MYR46.9m. We note that GWSB is in the midst of issuing a bank guarantee to DBKK in order to get the land title transferred to the former prior to the completion of the construction. The proposed mixed development, which has an estimated GDV of MYR774m, comprises a 4-star hotel (376 rooms), one block of service apartment (322 units) and two levels of retail outlets. We expect the company to kick off the project by launching the service apartment and retail portion (which is estimated to constitute about 60% of total GDV) in early 2016. Despite a cautious outlook for the property market ahead, we believe that Ho Hup’s Kota Kinabalu project is likely to be supported by a robust tourism industry and Sabah’s increasing population.

Potential land rights acquisition in Johor. 75%-owned subsidiary Ho Hup Ventures (Johor) SB is proposing to acquire a 70% stake in ICA for a cash consideration of MYR20m to be funded via borrowings. ICA has the rights to buy a 429-acre leasehold agriculture land in Kulai, Johor, from YPJ Plantations SB for MYR107.3m. This would be settled progressively over a 5-year period. Of this figure, MYR22.3m is to be settled in cash while the remaining MYR85m would be settled by way of delivering a technical & vocational education and training facility (TVET project). The land is located within the Yayasan Pelajaran Johor Academic City, which is approximately 7km from Kulai and 11km from the Senai International Airport. The land is being proposed for the development of a township over a 15-year period. It is focused on providing affordable homes catered to the expected growing student population in the area, as well as upgraders from the surrounding areas. However, the master development plan and estimated GDV are not known yet. The MYR107.3m consideration suggests a land price of MYR5.74 psf vs the preliminary indicative market value of MYR5.02 psf. There could be risks of further costincreases arising from future land conversions, infrastructure costs and the construction cost of the TVET project. In general, we are downbeat on the Johor property sector, considering the oversupply situation there. However, we maintain our neutral stance on Ho Hup’s proposed Johor project, given the long development period and the company’s affordable housing focus. We have yet to factor in any contributions from the potential increase of land rights, as the proposed investment in ICA and land rights acquisition are subject to Ho Hup’s shareholders’ approval. Valuation. Our initial assumption for Ho Hup’s annual orderbook replenishment of MYR300m might be somewhat optimistic, given that YTD orderbook replenishment only made up 28.6% of our estimates. Thus, we reduce our orderbook replenishment assumptions to MYR150m for FY15 and MYR200m for FY16/FY17. As a result, our earnings forecasts for FY15-17 have been adjusted by -0.4%/-0.7%/-3.8%respectively. Our fully-diluted SOP value per share is revised to MYR1.38 (from MYR1.77 undiluted and MYR1.48 fully diluted) following our earnings revision and latest GDV update. We switch our TP to the fully-diluted SOP value as it better reflects the underlying value per share, given that preference shares would be automatically converted at no cost by 23 Dec 2016. Note, however, that Ho Hup’s 2013/2018 warrants are currently out of the money, with the last tradable price and exercise price at MYR0.435 and MYR0.60 respectively. The fully-diluted SOP value of MYR1.38 provides a 53% upside. Maintain BUY.