Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)

In line with our estimate
HEMRAJ reported a 4Q12 net profit of Bt710m, up by 85% YoY and 13% QoQ. The figure was in line our estimate and the consensus. Excluding a non-recurring item (a gain from a bargain purchase), core profit would be only Bt654m, up by 63% YoY and 4% QoQ. The core figure was 11% below our estimate, due to a higher SG&A/sales ratio and lower equity income (an unplanned outage at Gheco-One) than assumed.
Results highlights
Earnings growth was driven by revenue from land transfers. HEMRAJ booked 350 rai of land presales and transferred title deeds for around 400 rai in 4Q12—less than the 430 rai transferred in 4Q11, but income from land sales rose 6% YoY to Bt1,180m because of a higher mean sales price.  As such, land GM was 45.4%, higher than our assumption of 44%. The booking backlog, which at YE12 stood at Bt3bn, will be realized as revenue at transference over the next 24 months. Service revenue jumped 35% YoY to Bt583m, due to greater sales volumes of potable and clarified water, an expanded rental factory portfolio and receipts from the new warehousing business.
HEMRAJ booked equity income of Bt259m for 4Q12, mainly the profit contribution from GHECO-One (35% stake; COD in July 2012), both from operating results and an unrealized FX translation gain.
Outlook
Strong earnings growth momentum should be sustained into FY13, led by the transference of title deeds and a higher profit contribution from GHECO-One (we expect a 10-month operational run this year). The outlook for land bookings is also good, given the ongoing expansions of automakers in HEMRAJ’s estates. We expect the firm to upgrade its current FY13 land sales target of 1,600 rai. For 1Q13, we anticipate a 53% YoY jump in rental revenue. However, earnings will post a YoY dive in absence of a Delayed Liquidate Damage (DLD) payout for GHECO-One (the contractor paid a two-month DLD penalty in 1Q12).
What’s changed?
We have upgraded our FY13 earnings forecast by 8% to Bt3.1bn to factor in fatter land GM and a higher mean land price than previously modeled. As such, our YE13 target price rises to Bt4.42 from Bt4.10.
Recommendation
HEMRAJ is our top pick in Industrial Property space. We believe that its earnings profile shift—smoother income streams and an expanding GM— will enable the share price to permanently trade above its current long-term average. Our BUY rating stands.