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)

KENANGA : Hunza Properties - BUY - 21 Apr 2008

Hunza Properties – Painful in the short term (Company Update)



Price: RM1.88

Target Price: RM3.59

Recommendation: BUY



· Slow-down in overall property sales. Besides vague global economic outlook, foreigners have been more deterred from buying Malaysian properties given the uncertainties churned by recent political outcomes. Therefore, Hunza Properties (Hunza) 2H08 earnings starts to feel the pinch as its on-going high-end projects have high-compositions of foreign buyers with an average of some 50% (Fig1).

· Slow-down most noticeable in Penang. Typically, the long Chinese New Year celebrations attributes to a QoQ decline in 3Q bottomlines (Fig2). Adding the effects of the “election fever” period could easily shave-off 3 to 4 weeks of Hunza’s 3Q08 property sales (especially in Penang, given its new state government). If uncertainties are not ironed out, such dampeners could continue in 4Q08 earnings onwards. Alila, Infiniti and Mutiara Seputeh have already recorded 3%, 50% and 68% QoQ decline, respectively for 3Q08 (Fig3).

· Short-term pain apparent… Penang’s new state government is going through a “teething” process and may need a minimum of 6 months to familiarize and make necessary changes in state operations. Until then, we expect bottle-necks in terms of new and unapproved property projects in Penang, such as Hunza’s Alila 2.

· …but positive outlook in the medium to long term as the new Penang state government is pushing for more transparency and competitiveness, which is in line with the state’s goal to attract more FDI’s in Penang. If successful, developers’ like Hunza, will enjoy spill-over effects from more FDI and more efficient processes.

· Downgrading FY08E and FY09E net profit by 24% and 21% to RM48m and RM62m, respectively. Based on mentioned reasons, we have slowed-down take-up rates for each project, and hence, profit recognition. Furthermore, we expect a narrowing of Hunza’s target market breadth as it increased prices of Infiniti and GPC by 15% to RM480psf and 45% to RM580psf, respectively. Nevertheless, this implies higher value extraction and more buffers against high raw material prices. FY08E dividend yield remains attractive at 5.7%.

· Downward revision in target price of RM3.59 from our previous RM4.37, based on our sum of parts RNAV on a fully diluted basis. We have significantly slowed down take-up rates and applied a higher WACC of 11.4% (7.3% previously) when valuing on-going projects. Maintain BUY.







KENANGA INVESTMENT BANK BERHAD (15678-H)

KENANGA RESEARCH: Hunza Properties - BUY - 28 Feb 2008

Second piece of land in the Klang Valley (KV).
Hunza Properties (Hunza) is acquiring 6.3ac land in Segambut for RM21.3m. The land is 5 minutes away from Mont Kiara, the most sought after location for premium lifestyle living inthe KV. The site is earmarked for 400 to 450 units of mid to high endcondominiums.

A Mont Kiara lifestyle for “half” the price, as Hunza intends to price itscondominiums at RM300psf to RM350psf, which is very attractive compared to Mont Kiara’s capital values range of RM550psf to RM850psf. Each unit’s build-up will be in the region of 1,000sf – 1,500sf, which works out as an affordableRM300,000 to RM525,000 per unit, especially for young working adultswanting a contemporary lifestyle. Based on these figures, we estimate GDV to be RM120m to RM184m. Timing of launch has not been revealed yet.

We think the land price is a bargain at RM78psf given its proximity to MontKiara/Sri Hartamas and new roads which makes Segambut more accessible.Also, by securing the land now, Hunza not only geographically increases itslandbank, but also purchased it for less than future market prices. We strongly believe that the increasing scarcity of land in Mont Kiara could propelSegambut’s land values higher.

Continuous presence in the KV is critical as KV home buyers areincreasingly brand conscientious and discerning. Hunza’s needs to havecontinuity in the KV to secure more earning diversification avenues, especially its comparatively smaller population size. The project further enhances itsbrand as a developer who can deliver quality wherever it goes.

Less ‘teething problems’ associated with starting a new team, as theexisting KV team is already in place. As this is their second KV project, Hunza KV team is familiar with the inner workings of KV which essentially expeditesexecution and save initial cost associated with setting up a new team. Target price based on sum of part RNAV remains unchanged at RM4.37, on a fully diluted basis, as we have conservatively valued the property usingthe purchase price. FY08E and FY09E PER valuations are very attractive at 5x and 4x versus the sector average of 15x and 10x, respectively. Maintain BUY.