Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)

Gheco-One risks now behind. The many delays in the commercial startup of Gheco-
One ended on July 26 and it will now be able to contribute an estimated Bt300-350mn
to HEMRAJ per quarter after 3Q12. The 3Q12 contribution is estimated at only
~Bt200mn since there were just two months of operations in the quarter and it still
must pay final compensation to EGAT for the delays.
Land sales on track to reach recent upgraded target. HEMRAJ’s land sales are
estimated at ~1,800 rai, reaching 77% of its new target of 2,300 rai, a record high. In
3Q12, the major client was Ling Long Tyres (Thailand) Co, one of the world’s top 20
tyre manufacturers. This company bought 306.3 rai in Hemaraj Eastern Seaboard
Industrial Estate (HESIE) to expand production. For now, Chinese clients contribute just
1% of HEMRAJ’s sales, but this will grow in the future.
Fast growing rental factory arena. Ready-buil t factories for rent grew at favorable
rate of 18% CAGR during 2001-2011 and then grew 20% to 190K sqm in 1H12. The
strong demand arises out of growth of clients in the automotive and related sectors.
Based on lease contracts for 31K sqm in 1H12 plus pre-leases for 31.6K sqm, HEMRAJ’s
new leases have already reached 62.6K sqm, 89% of our forecast. Thus we raise our
forecast to 90K sqm from 70K sqm for this year and to 100K sqm from 80K sqm for
2013-2014. Down the road, HERMAJ could set up a property fund to sell these factories
to and thereby realize profit and gain cash for reinvestment.
Earnings fine tuned. We factored in our raised assumption for factory rentals and
included the final compensation payment for Gheco-One. This leads to a 1% reduction
in 2012 forecast but a rise of 1-2% for 2013-2014.
Regulatory risk. As reported in an industry update of August 28, the BoI is drafting a
revision of its focus for privileges that involves promotions based on industry type
rather than BoI zone. It is as yet not known if IE land developers themselves will be
continue to be promoted. In the worst case, developers would be liable for corporate
income tax, but for HEMRAJ this would have the softest impact since it is so widely
diversified.
Maintain BUY. We like HEMRAJ for its well diversified income base, with its feet in
industrial estates focused on high-growth industries and the defensive power business
and rented factory/logistic centers. This means HEMRAJ’s earnings risk is relatively
lower than peers. With 97% CAGR earnings growth, we estimate profit will grow to
Bt4.1bn in 2014 from Bt537mn in 2011. The stock is trading at an undemanding PER of
11.7X on 2012, dropping to 8.4x in 2013 and 6.9x in 2014. With attractive ETR of 30%, we
remain BUYers.