Orchard Parade Holdings Core Earnings Inline

Third quarter holds no surprises
Orchard Parade Holdings (OPH) posted a 3Q07 net profit of $7.6m, up 158% Y/Y, despite a 3.1% Y/Y decline in revenue to $16.4m. With the exception of a $3.7m revaluation surplus on investment properties, core earnings were in line with our expectations. The lower revenue was due to lower development profits recognised in 3Q07, but this was partly offset by improved revenue from the hospitality division and higher rental income from the investment properties. Contributions from associated companies fell 58% Y/Y due to lower F&B sales from YHS (Malaysia) and higher advertising and promotion expenses incurred this quarter.

Hospitality division remains the mainstay
With Singapore continuing to welcome record numbers of tourist arrivals, OPH’s hospitality division is expected to see improved revenue and profits from its 597 hotel rooms and 128 serviced apartments.The launch of its residential project, The Floridian, is expected to be pushed to early 2008. Despite the government’s recent withdrawal of the Deferred Payment Scheme, we are maintaining our estimated selling price of the Floridian at $1,600 psf.

Yeo Hiap Seng turnaround still works-in-progress
Contributions from associated companies declined significantly in 3Q07($0.9m versus $2.2m in 3Q06). This was largely due to YHS’shigher advertising and promotion expenses frommore aggressive promotional activities in Malaysia in a bid to maintain market share. YHS also saw higher selling and distribution costs due to increased sales and higher transport and freight costs. YHS has stated that it will continue to improve its efficiency and adjust its pricing strategy. In addition, the launch of the Jardin is believed to be imminent.

Still undervalued
We think that OPH’s hospitality division will continue to build on its position and ride the upside with increased tourist arrivals into Singapore. In addition, the development profits from the yet-to-be-launched The Floridian will act as a bonus in the coming years. YHS’ turnaround will not be instantaneous, but the management is putting in a concerted effort to improve operations and leverage on its long-established brand name. ReiterateBUY with a target price of $3.27.