12-month upside potential Target price 2.62
Current price (as at 30 May) 2.32
3QFY13: Looking forward to a better FY14
Another dismal quarterly results was not a surprise as Hunza runs down its inventory amid a year without any significant property launches. Nonetheless, we remain upbeat of its near term outlook which is set to change dramatically once its Gurney Paragon Mall opens on 23 July. Property launches should also resume post 13GE. With anticipated earnings CAGR of 81% over the next 2 years, we expect Hunza to be re-rated going forward. As such, we reiterate our BUY call.
Broadly inline, a stronger 4Q expected
Hunza’s 9MFY13 net profit achieved 64.3% and 68.5% of house and consensus full-year estimates respectively.
We deem 9MFY13 results inline with our expectations but ahead of consensus as we anticipate a much stronger 4QFY13.
As expected, no dividends were announced for the quarter.
Development earnings still on a decline…
3QFY13 revenue declined by -49.3% y-o-y and -29.8% q-o-q to RM21.6m as Hunza runs down on its completed inventory amid lack of significant property launches in FY13.
3QFY13 net profit declined much sharper by -88.4% y-o-y and -72.9% q-o-q to RM1.5m due to higher taxes during the quarter as the transfer of landbank within the group was subjected to income tax.
For 9MFY13 period, net profit fell -52.1% y-o-y to RM13.2m.
Despite 3QFY13 earnings being the lowest of all quarters so far in FY13, we expect Hunza to report a much stronger 4QFY13 to close the gap to our FY13 net profit estimate of RM20.5m.
We understand that the group’s Bandar Putra Bertam township has reported very encouraging take-up rate for its latest launch of 173 units of double storey terrace houses. This RM55m GDV phase has reportedly secured more than 70 units sales with sales and purchase agreements signed and 10% downpayment collected. Many more bookings are expected to be converted into firmed sales in the months ahead.
…but a sharp rebound expected in FY14
As we are drawing closer to the end of the third successive year of profit decline, we look forward to better days ahead in FY14 with the opening of the Gurney Paragon Mall on 23 July. Hunza has already secured lease commitment for 80% of the space and is negotiating for another 15%.
We estimate annualised net earnings contribution of RM29.3m or 15.2 sen per share from Gurney Paragon Mall, equivalent to 90% of FY12 core earnings of RM32.6m.
Besides Gurney Paragon Mall, earnings visibility will also improve markedly from FY14 onwards due to contribution from a new property launch i.e. Alila 2 in Tanjung Bungah, Penang. This project which is pending authorities’ approval should gain some traction following a closure to 13GE recently.
We expect Hunza’s core net profit to grow at CAGR of 81% over FY14 and FY15.
Impact on estimates
We make no changes to our estimates.
Hunza currently trades at a 22% discount to FY12 NTA of RM2.99 and 65% discount to RNAV of RM6.55.
With improving earnings outlook, we believe such steep discount is no longer justified.
We reiterate our BUY call with unchanged target price of RM2.62 based on 60% discount to RNAV. At our TP, the group will be valued at FY14-15 P/E of 17.3x and 7.8x respectively.