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Hunza Properties
FY10 company briefing updates
? Alila 2 (GDV: RM300m) targeted for soft launch by end-CY10, as development approvals should be obtained. Recall Alila 2 will feature ‘green concept’ high end condominiums and will likely be GBI certified. Pricing is likely to be between Alila 1 condominiums (RM380psf-RM400psf) and Infiniti (c.RM600psf) and we believe it could be in the regions of RM550psf, based on a 10%-15% premium to secondary market asking prices.
Hunza hopes to commence works in 3QFY11, meaning significant earnings contributions by 2QFY12. Although land cost is < 5% of GDV, we are assuming gross development margins of 40% after taking into consideration land cost being <5% of GDV and additional GBI compliance costs.
? Gurney Paragon Mall (GPM) first c.100,000sf NLA to come online by 1QFY12, or c.13% of total NLA of 0.8m sf, as the mall’s frontage will receive its OC by 4QFY11. Full completion is likely end CY12.
Management expects to charge RM10psf pm rental rates, which we believe are extremely attractive for ground floor charges; Gurney Plaza rental range for a 340sf-820sf ground floor space is about RM9psf-RM28psf. Given popularity of Gurney Plaza (c.100% occupied), we are assuming 50% occupancy for FY12 and conservative 45% net margins, adding RM2.7m to bottom line.
? Gurney Paragon Condo (GPC) GDV increased 16% to RM450m. Since soft launch in mid-CY07, prices have appreciated 44% to an average of RM650psf. With RM311m worth of unbilled sales and 90 units unsold, GPC will be the key FY11E earnings driver. l Increasing FY12E net profit by 16% to RM34.3m (-27% YoY).
We have adjusted for earlier than expected launch of Alila 2 and impute for GPM rental contribution. However, we are still assuming gradual take-up rates of 73% for GPC by end FY11E, and hence, no changes to our FY11E net profit of RM47.0m (-8% YoY).
? Lower fair value of RM1.76 (previously RM1.96), based on FD SoP RNAV, as we use higher 6.4% WACC (previously 5.4%) to DCF on-going/soon to be launched projects. We are cautious of impending declining profits since the group lacks sizeable launches in the next 2 years.
Even if GPC was to sell out in FY11E, implying net profit could balloon up to RM74m (+46% YoY); FY12-13E earnings will fall significantly, as Alila 2 would be the only other signifncat project (Bayan Baru project only commences after GPM’s completion or by 2HFY13). The sales performance of the next two quarters will determine if the earnings momentum will carry through to FY12-FY13.
? Nonetheless, at our fair value, the stock still shows value; 1) 6.8x FY11E PER (current price: 5.4x) vs. 7.6x historical and 8.9x peers 2) 0.7x FY11E PBV (current price: 0.6x) vs. historical 0.8x and peer’s 0.7x. Maintain Trading BUY.
Other Points
Clearing up squatters from Bayan Baru land. Currently, a portion of the land has squatters. Hunza has had positive results when dealing with compensating squatters in the past and we expect similar outcomes to occur. Squatters will likely be relocated to low-cost flats in another area, developed by Hunza, in the next 18 months, costing c.RM15m.
Positively, 95% of land payments are only payable in >2 years time. Launch of the Bayan Baru project will be post completion of GPM.
Note: We will only factor in Bayan Baru into our earnings and RNAV when SPA becomes unconditional.
FY10 company briefing updates
? Alila 2 (GDV: RM300m) targeted for soft launch by end-CY10, as development approvals should be obtained. Recall Alila 2 will feature ‘green concept’ high end condominiums and will likely be GBI certified. Pricing is likely to be between Alila 1 condominiums (RM380psf-RM400psf) and Infiniti (c.RM600psf) and we believe it could be in the regions of RM550psf, based on a 10%-15% premium to secondary market asking prices.
Hunza hopes to commence works in 3QFY11, meaning significant earnings contributions by 2QFY12. Although land cost is < 5% of GDV, we are assuming gross development margins of 40% after taking into consideration land cost being <5% of GDV and additional GBI compliance costs.
? Gurney Paragon Mall (GPM) first c.100,000sf NLA to come online by 1QFY12, or c.13% of total NLA of 0.8m sf, as the mall’s frontage will receive its OC by 4QFY11. Full completion is likely end CY12.
Management expects to charge RM10psf pm rental rates, which we believe are extremely attractive for ground floor charges; Gurney Plaza rental range for a 340sf-820sf ground floor space is about RM9psf-RM28psf. Given popularity of Gurney Plaza (c.100% occupied), we are assuming 50% occupancy for FY12 and conservative 45% net margins, adding RM2.7m to bottom line.
? Gurney Paragon Condo (GPC) GDV increased 16% to RM450m. Since soft launch in mid-CY07, prices have appreciated 44% to an average of RM650psf. With RM311m worth of unbilled sales and 90 units unsold, GPC will be the key FY11E earnings driver. l Increasing FY12E net profit by 16% to RM34.3m (-27% YoY).
We have adjusted for earlier than expected launch of Alila 2 and impute for GPM rental contribution. However, we are still assuming gradual take-up rates of 73% for GPC by end FY11E, and hence, no changes to our FY11E net profit of RM47.0m (-8% YoY).
? Lower fair value of RM1.76 (previously RM1.96), based on FD SoP RNAV, as we use higher 6.4% WACC (previously 5.4%) to DCF on-going/soon to be launched projects. We are cautious of impending declining profits since the group lacks sizeable launches in the next 2 years.
Even if GPC was to sell out in FY11E, implying net profit could balloon up to RM74m (+46% YoY); FY12-13E earnings will fall significantly, as Alila 2 would be the only other signifncat project (Bayan Baru project only commences after GPM’s completion or by 2HFY13). The sales performance of the next two quarters will determine if the earnings momentum will carry through to FY12-FY13.
? Nonetheless, at our fair value, the stock still shows value; 1) 6.8x FY11E PER (current price: 5.4x) vs. 7.6x historical and 8.9x peers 2) 0.7x FY11E PBV (current price: 0.6x) vs. historical 0.8x and peer’s 0.7x. Maintain Trading BUY.
Other Points
Clearing up squatters from Bayan Baru land. Currently, a portion of the land has squatters. Hunza has had positive results when dealing with compensating squatters in the past and we expect similar outcomes to occur. Squatters will likely be relocated to low-cost flats in another area, developed by Hunza, in the next 18 months, costing c.RM15m.
Positively, 95% of land payments are only payable in >2 years time. Launch of the Bayan Baru project will be post completion of GPM.
Note: We will only factor in Bayan Baru into our earnings and RNAV when SPA becomes unconditional.
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