Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)

Land sales target likely to be raised for third time this year. HEMRAJ sold 788 rai of IE land in 3Q13, +56% YoY and +3% QoQ. This consisted of 82 contracts, 62% of which were with new customers and 38% expansions by existing customers. Major customers included Summit Auto, Thai Summit, Ling Long Tyres, Ford and Mazda Powertrain. This brings 9M13 land sales to 1,978 rai, flat YoY; since this accounts for 94% of its full year target of 2,100 rai, the company is likely to lift its 2013 target for the third time this year. Note that among IE developers, HEMRAJ has largest market share of land sales in 9M13. Its 2014 target for land sales is 1,500 rai.
RBF leases slower than expected. Ready-built factory net leases rose 48.5K sqm in 9M13, +21% YoY. Adding in pre-leases of 11.5K sqm raises total leases to 60.0K sqm, meaning it may miss our 2013 forecast of 120K sqm. 9M13 net leases of ready-built warehouses (RBW) is 55.3K sqm; though it looks low, we believe it will achieve our forecast of 100K sqm in 2013.
3Q13F: better YoY and QoQ. 3Q13F profit is estimated at Bt730mn, +16% YoY and +30% QoQ. The better performance QoQ comes solely on a turnaround largely due to smaller FX loss at GHECO-1, in which HEMRAJ holds 35%. We estimate HEMRAJ’s equity income at Bt250mn in 3Q13F, largely from GHECO-1, a turnaround from a loss of Bt118mn in 2Q13. HEMRAJ’s core operations are expected to grow 45% YoY but weaken 29% QoQ to a profit of Bt480mn, as deed transfers fell to 440 rai in 3Q13 from 628 rai in 2Q13. Gross margin is expected to be stable at a high 50%. It will release results on November 13.
Unlocking assets in 4Q13 or 1Q14. HEMRAJ has filed with the SEC to set up a property fund. It plans to spin off 150K sqm of RBF valued at ~Bt4.5bn and will hold 23% in the fund. This transaction would give it an estimated Bt1.1bn net gain.
Maintain BUY. We like HEMRAJ for it well diversified income base, large portion of recurring income and stable utilities income that give it good visibility. In the near term, the setup of a property fund and probable raise in its land sales target could be positive share price catalysts, though at the same time, current political unrest could lead to share price volatility in the short term. We reiterate BUY for its sound fundamentals.