• Heeton reported revenues of SGD 17.53m for their first half financial results ended 30 June 2021 (&ldquo 1H21&rdquo ).

• The share of results from associated companies and joint venture companies increased by 158.4% to SGD 5.77m due to higher profits recognised for development projects as a result of the resumption in construction work in Singapore.

• Heeton has cash and cash equivalents (including fixed deposits) of SGD 88.06m in 1H21, up from SGD 58.57m in 1H20.

• After redemption of its 2021 notes, Heeton should be able to manage its cash flows going forward. Our estimated current ratio for the company after refinancing of its 2021 notes is approximately ~1.91x.

Following the exchange offer exercise on 14 October 2020, Heeton Holdings Limited (&ldquo Heeton&rdquo ) completed the redemption of the outstanding SGD 117.75m of    HTONSP 6.080% 19July2021 Corp (SGD).

Looking forward to its remaining outstanding notes due 2023, we continue to hold a positive credit outlook on Heeton. As the construction and hospitality sectors continue to pick up, the recovery will be beneficial to Heeton especially in the hospitality sector. We will highlight Heeton&rsquo s first half financial results and the recommendations for Heeton&rsquo s notes in this article. 

1H21 Financial Results

Heeton reported revenues of SGD 17.53m for their first half financial results ended 30 June 2021 (&ldquo 1H21&rdquo ). Property development and hospitality saw a huge decline in 2020 due to the impact of Covid-19. In 2021, the sector has slightly rebounded, although not to pre-pandemic levels. Nevertheless, it is still a healthy sign to see recovery in these industries.

For Heeton, the property development segment saw revenues of SGD 5.90m while the hospitality segment saw revenues of SGD 11.02m. Bottom line profits for the company also improved: In 1H20, the company saw a net loss before tax of SGD 8.93m and in 1H21, bottom line profits increased to a net profit before tax of SGD 0.51m.

For property developers, it is imperative that the company does not halt any construction work as it relies on the completion of the development projects for its cash flows. 2020 saw the halt of construction due to Covid-19 related lockdowns imposed in Singapore. In 1H21, the share of results from associated companies and joint venture companies increased by 158.4% to SGD 5.77m. This was due to an increase in rental profits and also higher profits recognised for development projects as a result of the resumption in construction work in Singapore.

Heeton is currently developing three residential development projects in Singapore that are expected to complete by 3Q 2022. As of 1Q21, sales in Park Colonial rose to 99.25%, Affinity@Serangoon to 87.32% and Rezi24 to 99.20%. Completion of these projects will provide positive cash flows for the company.

As seen from Figure 1, hospitality segment for Heaton comprised of 45% of its total revenue. Heeton has 15 hospitality properties providing SGD 11.02m in revenue in 1H21. Most of Heeton&rsquo s hospitality properties are located in the United Kingdom.

On 24 June 2021, Heeton announced the opening of DoubleTree by Hilton London Kensington under a franchise agreement with Hilton. The property was formerly known as the Crowne Plaza London Kensington and was acquired in 2019 by a consortium led by Heeton together with KSH Holdings Limited and Ho Lee Group Pte Ltd.

Heeton has further 2 more hotels currently under development. The company has a 70% stake in a hotel and residential property in New York Road, Leeds with an approximate gross floor area of 77,749 sqm. Among its investment properties, Heeton has a 75% stake in a hotel property in Manchester, United Kingdom and 74% stake in a hotel in Bhutan.

Prior to the pandemic, Heeton made SGD 39.98m of revenue from the hospitality segment in FY2019. Although its current hospitality revenue is still far off from pre-pandemic levels, following the normalisation of economic activity and travel especially in the UK, we expect Heeton&rsquo s hospitality numbers to improve.