Hunza Properties - BUY - 27 May 2008

Hunza Properties - 9M08 results in line (Results Note)



Price: RM1.84

Target Price: RM3.59

Recommendation: BUY



· 9M08 net profit of RM38m was within our and street estimates, accounting for 79% and 76% of respective FY08E forecasts of RM48m and RM50m. Hunza Properties (Hunza)'s in-line results can be attributed to its iconic Penang projects, Gurney Paragon (GP) and Infiniti, which commenced earnings contribution and recorded high take-up rates of 48% and 52% (at 31/3/08), respectively.

· Sharp 64% YoY rise in 9M08 net profit, on the back of higher billings from Alila Horizon, Alila townhouses and Mutiara Seputeh semi-detached as they have high-take up rates (99%, 78% and 86%, respectively, at 31/3/08) and are near or fully completed. However, EBITDA margins fell 27 bps to 29.4% due to last year's strong sales and billings from Bandar Putra Bertam's higher margin shop offices.

· 40% QoQ drop in 3Q08 pretax profit to RM13m, largely due slow down in GP sales due to negative sentiments and sharp increases in finance cost from RM4,000 to RM0.9m. Interest expense relating to the Sungai Petani township must be expensed, and not capitalized, as the project is temporarily on hold. In the immediate term, Hunza will be focusing its attention on higher growth projects in Penang as demand is much softer in Sungai Petani.

· Gurney Paragon project will NOT be reviewed. The Penang state government stated the project will continue as GP does create a traffic dispersal problem. Sales are expected to recover while Hunza puts more efforts in advertising.

· 3.7sen GDPS declared, which accounts for 35% of our 10.6sen FY08 GDPS or a yield of 5.7%. Our estimates are a 31.0% net profit payout versus FY07's 31.5% or a GDPS of 9.1sen. We expect a flat growth in dividend payout due to heavy capital requirements arising from GP, Infiniti and the pipeline projects, Alila II (estimated RM250m GDV) and the Segambut project.

· Fine-tuning FY08E and FY09E net profit forecast by 2.0% and 0.8% to RM47m and RM62m, respectively, to account for the higher interest expense from Sungai Petani. Unbilled sales remain strong at RM276m as at 31/3/08.

· No change in target price of RM3.59. FY08E and FY09E PER is very attractive at 5.3x and 4.1x, respectively. Maintain BUY.





KENANGA INVESTMENT BANK BERHAD (15678-H)