Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)

Investment thesis
Last week’s HEMRAJ analyst meeting has boosted our bullishness over earnings and the scope for growth. The firm has upgraded its FY13 land presales guidance from 1,600 rai to 1,800 rai, prompting us to raise our earnings forecasts by 1.5% for FY13 and 2% for FY14. We have revised up our YE13 SOTP-derived target price to Bt4.9 from Bt4.4 previously, as we have adopted higher PER pegs for its industrial utilities (from 10x to 15x) and power (from 10x to 13x) businesses. Our YE13 target price implies an FY13 PER of 14.7x, 0.5SD above its long-term average of 12x.
421 rai booked and about 550 rai transferred in 1Q13
Clients booked 421 rai of land in 1Q13. HEMRAJ believes it will reach 50-55% of its FY13 land booking target by mid-year (which it recently revised up from 1,600 rai to 1,800 rai). The firm also said it transferred about 550 rai during the quarter (we had assumed 500 rai). Its FY13 transference target range is 1,800-2,000 rai. As such, we have upped our 1Q13 earnings estimate by 7% and raised our full-year projections by 1.5% to Bt3.2bn for FY13 and by 2.2% to Bt3.4bn for FY14.
Rental portfolio growth has reached almost 50% of FY13 target
So far this year, HEMRAJ’s factory portfolio has expanded by 28,030sq.m (against an FY13 target of 120K sq.m) and its warehouse portfolio by 11,888sq.m (against an FY13 target of 100K sq.m). Including pre-leased and LOI premises, it has achieved 40-45% of its factory target and 48% of its warehouse target. Generally, leases start within 1-4 months of the signing a pre-lease contract and it takes 4-6 weeks to convert an LOI to a pre-lease contract.
Q1 2013 earnings to drop YoY but rise QoQ;  and 2H>1H
We expect a 1Q13 profit of Bt782m, up 10% QoQ but down 9% YoY. The top-line should have risen by 16% YoY and 10% QoQ on greater land transference and a higher mean sales price. We expect lower QoQ water income, due to the maintenance shutdown of a petrochemical plant in Maptaphut. Revenue from rental properties should rise further on an expanded rental portfolio. GM should have fattened, both YoY and QoQ on higher land GM and utilities income. Equity income from Gheco-One should have risen 8% QoQ to Bt280m (an unplanned outage in 4Q12).
Despite guidance of fatter land GM in 2Q12, we anticipate softer QoQ earnings, as equity income from a new SPP (126MW; COD on May 2; HEMRAJ holds 25%) won’t be sufficient to offset the effect of a 4-8-week maintenance shutdown at Gheco-One (713MW; HEMRAJ holds 35%). 2H13 profit should rise HoH on greater utilities and rental revenues and increased equity income from the power business.