Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)
Far below our estimate and the consensus
HEMRAJ reported a 3Q13 net profit of Bt625m, up by 1% YoY and 12% QoQ. There was only a negligible FX loss. As such,core earnings were also Bt625m. The core figure was 16% lower than the Bloomberg consensus and 19 % short of our estimate, due to slimmer GM and lower equity income than assumed.
Results highlights
Income from land sales dived 23% QoQ but rose a marked 51% YoY to Bt1.1bn on greater land transference. HEMRAJ transferred 440 rai during the quarter (against 365 rai in 2Q12). Its presales also increased by 788 rai in 3Q13. We estimate that the total presales backlog at end-Sept was worth Bt3.8bn. Furthermore, the firm booked income of Bt130m from transferring units at the Park condominium during the quarter. Real estate GM was 51.4%, up from 44% in 3Q12, as customers largely moved into locations with existing utilities infrastructure.
Income from industrial estate utilities rose by 31% YoY and 1% QoQ to Bt391m, due to greater demand for potable and clarified water and waste water treatment services. Revenue from rental properties jumped by 42% YoY and 13% QoQ, driven by expanding factory and warehouse rental portfolios. Blended GM was 49.8%, up from 46.4% in 3Q12 and 48.7% in 2Q13. Equity income was Bt113m, a turnaround from an equity loss of 118m in 2Q13 on a higher number of operational days at the Gheco-One power plant (but was lower than our estimate of Bt200m).
Outlook
We anticipate a record net profit in 4Q13. We can assume from the lower-than-expected 3Q13 land transference that the transaction dates were postponed to 4Q13. Rental revenue should expand further with the achievement of the following targets—occupied rental factory space is to rise from 48k sq.m at end-Sept to 80k sq.m at YE13 and rental warehouse space from 55k sq.m to 70k sqm at YE13. Equity income is projected to increase on a full operational quarter for Gheco-One. Furthermore, there is scope for upside from a planned property fund in 4Q13. HEMRAJ intends to sell 150k sq.m of factory space to the fund. Ongoing presales and a huge existing backlog will support earnings growth in FY14.
What’s changed?
We have cut our FY13 profit forecast by 7% to Bt3bn to reflect lower-than-expected equity income and GM in 3Q13. The 9M13 bottom-line represents 69% of our full-year projection and 73% of the consensus. However, our FY14 earnings and YE14 target price stand unchanged.
Recommendation
We have a BUY rating with a YE14 target price of Bt4.6.