Revised target price 2.52
Current price (as at 28 Aug) 2.01
4QFY13: A strong end to the year
Hunza ends FY13 on a brighter note as its 4QFY13 results exceeded both ours and consensus estimates. Going into FY14, we expect earnings to rebound following the soft opening of Gurney Paragon Mall on 23 July. We also expect property launches to gain traction but delay in procuring approvals remains the key risk. Hunza continues to trade at steep 60% discount to RNAV which we believe will narrow as its earnings visibility improves. Reiterate BUY with lower target price of RM2.52, which is based on 50% discount to RNAV of RM5.04.
A strong 4QFY13 results
Hunza’s FY13 net profit of RM166.0m includes revaluation gains of RM146.1m, of which RM91.9m relates to Gurney Paragon.
Excluding revaluation gains, Hunza’s FY13 core net profit of RM21.8m exceeded expectations as it achieved 106.6% and 114.4% of house and consensus estimates respectively. While a strong performance is expected in 4Q given strong take-up for its Bandar Putra Bertam, we were pleasantly surprised by this set of results.
As expected, Hunza announced a final net dividend of 5.6 sen, matching last year’s DPS.
Besides cash dividend, Hunza has on 22 Aug announced the distribution of share dividend of 25 treasury shares for every 1,000 existing shares held. The book closure date will be announced at a later date. Based on last closing price, the share dividend is worth 5 sen per share. As such, total DPS for FY13 amount to 10.6 sen, or 5.3% yield.
Looking forward to the start of earnings rebound in FY14
With the soft opening of the Gurney Paragon Mall on 23 July, which has secured 80% of lease commitment, we expect FY14 to be the start of earnings rebound for Hunza.
We estimate EBIT contribution of RM27.8m from Gurney Paragon Mall in FY14, equivalent to 54% of total EBIT estimate. This only represents 9 months’ contribution as we assume a 3-month rent free period during fit-out.
Besides Gurney Paragon Mall, earnings visibility will also improve from FY14 onwards due to contribution from a new property launch i.e. Alila 2 (GDV RM350m) in Tanjung Bungah, Penang. We were also pleasantly surprised by management’s guidance that they are also looking to launch a new integrated project on 36 acres of land in Juru, Seberang Perai. However, details on this new project are sketchy at this juncture and therefore, not taken into account in our estimates.
We expect Hunza’s core EPS to grow at CAGR of 65% over FY14 and FY15.
EPS cut on private placement dilution
Although we make some housekeeping adjustments following the end of FY13, our FY14 and FY15 earnings estimates are largely intact.
However, dilutive effect from private placement of 18.1m shares on 31 July leads to FY14 and FY15 core EPS estimates being cut by 11.3% and 11.0% respectively.
Maintain BUY with lower TP of RM2.52
Hunza currently trades at a 48% discount to FY13 book value of RM3.84 and 60% discount to revised RNAV of RM5.04 (previously RM5.29). Our revised RNAV takes into account higher than expected net debt as at end FY13, market value of Juru land and higher valuation for Gurney Paragon following its completion and opening.
With improving earnings outlook, we believe such steep discount is no longer justified. As such, we reiterate our BUY call.
Following our RNAV revision, we lower our target price to RM2.52 from RM2.62 which is based on unchanged 50% discount to RNAV. At our TP, the group will be valued at FY14-15 P/E of 18.8x and 8.4x respectively.
Key investment risks include (1) delay in procuring planning approvals, and (2) implementation of more measures by the government to curb property speculations.
Publish date: 29/08/13