Hemaraj Land & Development
BUY (maintained) Target Price: Bt4.10 Price (20/08/12): Bt2.94
Hemaraj Land & Development Plc
Investment thesis: 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, the valuation is attractive. Although we expect a multiple de-rating, due to an earnings mix shift into electricity sales, HEMRAJ’s FY13 PER of 8.3x is still below the 5-year historical mean PERs of both power producers (10.2x) and industrial estate operators (14.5x).
New target price of Bt4.10: We have rolled over our investment horizon to YE13 and arrived at a new target price of Bt4.10. We also cross-checked the historical average PER multiples of the Industrial Estate and Utilities sectors and our target price (which implies an FY13 PER of 11.5x) is in line with the weighted average PER of the two industries.
Strong land sales momentum: HEMRAJ sold 1,447 rai of land in 1H12 and recently sold another 306 rai to a Chinese tire maker. The firm has, thus, raised its FY12 land sales target to 2,300 rai from 2,000 rai, which we believe is achievable. This strong land sales momentum should continue for the next couple of years, led by capacity expansion—mainly in the automotive industry—ahead of the start of the ASEAN Economic Community in 2015.
Robust demand for rent: HEMRAJ rented out factory space of around 30K sq.m in 1H12, enlarging its factory portfolio by 46% to 190K sq.m at end-June. The firm targets growing the portfolio by 80K sq.m this year and renting out 80,000sq.m of warehouse space at Logistics Park (a new business) per year, starting 2H12.
Minimal impact from GHECO-One shutdown: Just after it started running on July 26, Gheco-One was forced to shut down for 20 days, due to boiler tube leaks and some issues related to the installation of equipment. The plant had previously been scheduled for a 14-day shutdown, so a six-day loss of the availability payment would cut HEMRAJ’s FY12 profit by Bt34m (we think the loss should be claimable from the contractor).
