Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)

Core profit in line with estimate: HEMRAJ reported a 2Q12 net profit of Bt94m, up 200% YoY but down 89% QoQ. Excluding a penalty charge to EGAT of Bt216m (HEMRAJ’s proportionate shareholding in GHECO-One), core profit would be Bt310m, in line with our estimate.
Results highlights: The firm sold 519 rai of land and transferred title deeds for around 450 rai in 2Q12 (versus only 200 rai in 2Q11). Revenue booked from land, thus, expanded by 142% YoY to Bt954m. The firm also booked income of Bt49m from transferring the Park condominium during the quarter.
Real estate business GM (land and condo) expanded by 237 bps to 45.7% on higher industrial land prices. Note that HEMRAJ increased land prices by 15%, but the full effect has yet to be seen in GM, as it is still blended with old prices. The implication is that GM will gradually increase over the next 24 months.
HEMRAJ announced an interim dividend of Bt0.04/share. XD on August 22.
Outlook: We expect a big jump in profit in 3Q12, led by equity income from GHECO-One, which commenced operating on July 26. Moreover, industrial land transfers should gradually increase, given the large backlog on-hand of Bt3.2bn to be booked as revenue during the next 24 months.
What’s changed? We maintain our earnings forecast and target price unchanged.
Recommendation: We like HEMRAJ for its superior earnings visibility and sustainability in the sector, thanks to a strong land sales outlook, a big backlog on-hand and its investment in the power business. Moreover, there is some scope for upside, as actual FY12 land sales may surpass our relatively conservative assumption of 2,000 rai. The valuation is also attractive—an FY13 PER of only 9.2x. Our BUY rating stands.