Hemraj Land & Development

Hemraj Land & Development Plc (HEMRAJ)

2013 operations good: land sales at 2,200 rai target; record high transfers

2014F: conservative target of 1,600 rai; to continue expanding utilities and
recurring income
Look for strong 4Q13F thanks to large gain from asset unlocking
Earnings cut 18-20% for 2014-2015; Attractive valuation, maintain BUY
2013 operational wrap-up. HEMRAJ achieved its land sales target of 2,200 rai in
2013, keeping it #1 in the market for the sixth year (2008-2013), though a small 5% YoY
drop. This consisted of 101 contracts, with 60% of those new customers, including
Mazda Powertrain and Chonburi Power. Land transfers were also good at 2,407 rai,
beating our forecast. Utilities income did well, growing ~20% YoY. However, the readybuilt
factory (RBF) and warehouse unit was below its target and our forecast due to
weak auto production. It set up Hemaraj Industrial Property Fund (HPF), into which it
injected 150K sqm RBF for Bt4.7bn; it holds 23%.
2014 business plan. HEMRAJ targets 2014 land sales of 1,600 rai, -27% YoY, which we
feel is achievable. It plans to spend Bt2bn developing 575 rai in Hemaraj Eastern
Seaboard Industrial Estate phase 6, 632 rai in Hemaraj Chonburi Industrial Estate II and
3,200 rai in an undisclosed new IE. It expects utilities income to grow 14% YoY, and has
revised down GHECO-ONE contribution to Bt1.2bn p.a. from Bt1.4bn due to a weak
baht, with higher equity income from its SPP from a full year of operations versus
seven months in 2013. Its RBF target is more conservative with a 50% or 80-90K sqm
increase; warehouse to add 55-70% or 40-50K sqm.
Earnings revision. We raise 2013F by 4% to Bt3.8bn, factoring in more land transfers.
This is more than offset by higher expenses, including FX loss for GHECO-ONE in 4Q13, a
Bt90mn loss at Huay Ho Power Plant due to transmission line damage, lower revenue
of RBF and warehouses, and higher interest expense. 4Q13 performance will be very
strong thanks to huge gain from asset unlocking which we estimate at Bt1.1bn.
However, we cut 2014F by 18% to Bt3bn and 2015 by 20% to Bt3.1bn. In 2014 there will
be a 16% YoY contraction without the large gain on sale of assets to a fund, fewer land
transfers. We cut GHECO-ONE’s profit to Bt1.2bn from Bt1.4bn and raise interest
expense. We also add in higher profit from SPP plus dividend income from HPF. Our
current forecast is 37% ahead of consensus for 2013, but 14-18% lower for 2014-2015.
PT down but maintain BUY. The earnings cut leads to a reduction in PT to
Bt4.4/share from Bt5/share. We still like HEMRAJ, however, for its well diversified
income base and large portion of recurring income (>60% of net profit). Share price is
likely to be volatile in the short term given the political turmoil plus the fact the BoI
cannot approve large projects until it gets a new board. However, for the longer term,
we look for a rally as the heavy share price correction of 40% over the past 10 months
has led it to trade at an undemanding valuation of PER of 8.7-9.8X and PBV of 1.5-1.9X
for 2013-2015. Thus, we reiterate BUY.