Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)

Earnings downgrade. GHECO-1 is facing some difficulties, with a plant shutdown and
lower production rate than anticipated, and this will reduce its profit contribution to
HEMRAJ. In response we have lowered our 2013 net profit forecast by 15% to Bt2.7bn;
2014 and 2015 are left unchanged.
QoQ fall in 2Q13. HEMRAJ will turn in a softer performance QoQ in 2Q13 due to
GHECO-1’s shutdown and potential FX loss (see below). The baht has weakened 3%
since the BoT cut its repo rate by 25bps to 2.5% and assuming the exchange rate stays
at yesterday’s level, HEMRAJ will book ~Bt160mn FX loss, almost completely wiping out
1Q13’s FX gain of Bt210mn.
GHECO-1 tax dispute. The Revenue Department says GHECO-1 must pay a total of
Bt625mn in taxes on FX gains made during the project construction (2008-2010) plus a
charge for late payment of 1.5% a month. GHECO-1 will pay the amount in full in 2Q13
to avoid further interest charges but will file an appeal with the Bureau of Tax Appeals
in hopes of a refund. If this appeal is rejected it will proceed to the Tax Court, which
could take years to be finalized. Note that the amount felt on HEMRAJ’s earnings is
~Bt220mn. We will factor this in our forecast after GHECO-1 decides whether to book
this on the P&L or under retained earnings (B/S).
Outlook good for all core businesses. HEMRAJ is keeping its land sales target at
1,800 rai this year, with 421 rai (23%) already in the bag as of 1Q13. We believe its
target for the year is achievable, given high BoI applications and greater marketing. It
guides for strong demand outlook for utilities and ready-built factories & warehouses.
Backlog Bt2.8bn. The company expects to book 60-70% of its Bt2.8bn backlog as
revenue this year. Adding this to its revenue recognition in 1Q13 secures 70-76% of our
IE land revenue forecast for 2013 and 19-25% for 2014.
Not participating in GLOW’s new IPP. GLOW is on the shortlist for two new IPPs of
1,100MW and 2,200MW. HEMRAJ said it is not planning to invest in either of these;
however, since they will be sited on land GLOW bought from HEMRAJ two years ago,
HEMRAJ will benefit in term of increased water sales when the plant starts up, now
planned for 2021-2026.
Maintain BUY. We lower HEMRAJ’s PT by 3.8% to Bt5/share to reflect the lower
contribution from GHECO-1. In our view, the company’s near term outlook is
shadowed by GHECO-1’s unstable operations and the tax dispute, but we hold a better
longer term view, since it has a well diversified income base with a large portion of
recurring income and stable utilities income that give it good visibility.