Hunza Properties - BUY - 21 Aug 2008

Hunza Properties - FY08 results within expectations (Results Note)



Price: RM1.40

Target Price: RM3.59

Recommendation: BUY



· FY08 net profit of RM48m came within our and street expectations, while exceeding both estimates by 2% each. Hunza Properties (Hunza) results were driven by higher billings from Alila and Mutiara Seputeh (MS) as the projects have been completed or are nearly completed. As at 30/6/08, Hunza has achieved 99% and 82% take-up rates for Alila high-rise and low-rise, while MS saw 97% and 15% take-up rates for its semi-detached and bungalows.

· YoY, FY08 net profit grew 23% as Gurney Paragon (GP) commenced earnings contribution this year with a 50% take-up rate. However, FY08 pretax margins were compressed by 410bps YoY to 27.9% because of higher recognition of rich margins Bandar Putra Bertam shop offices in FY07. Also, Hunza recognized RM3.5m (2% of Alila's GDV) cost overruns/under-accruals on completion of Alila. The minimal overruns demonstrates Hunza's ability to control cost amidst rapid rising material cost.

· QoQ, 4Q08 pretax profit increased 11% to RM15m on the back of 99% increase to share of profits from Infiniti to RM7m. Finance cost also fell 53% to RM0.4m due to a reduction in total borrowings by 9% to RM143m.

· Proposed final gross dividend per share (GDPS) of 7.3sen. This results in a full year FY08 GDPS of 12.3sen (dividend yield of 8.8%). We are forecasting the same GDPS of 12.3sen for FY09E as management intends to maintain similar dividend yield to FY08.

· Maintain FY09E and FY10E recurring net profit of RM62m and RM77m, respectively, on the back of RM267m unbilled sales as at 30/6/08. We are also introducing FY11E recurring net profit of RM45m which only includes 2 pipeline projects; Alila 2 and new launches from Bandar Putra Bertam (details are as below). FY11E could see potential earnings growth if the Segambut project is launch by 2HFY10. Note that our estimates are subjected to further review, pending the 25/8/08 company briefing.

· No change in target price of RM3.59. We will only factor in impact of DCF earnings from pipeline projects upon their respective launches. FY09E and FY10E PER is very attractive at 3.3x and 2.7x, respectively. Maintain BUY.