Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)

Good YoY and QoQ, release May 14. Net profit is estimated at ~Bt1bn, +18% YoY and +43% QoQ. Backing the YoY growth is: a) price increase of ~20% (deed transfers were the same at ~550 rai); b) two condo units sold (none in 1Q12); c) 20% increase in service income (utilities sales and ready built factory & warehouse rentals); and d) more contribution from GHECO-1. We expect it to book Bt520mn from GHECO-1, with ~Bt245mn of that being FX translation gain and ~Bt275mn from operations.
1Q13 backup. HEMRAJ sold 421 rai in 1Q13, -55% YoY but +15% QoQ. The YoY fall came from a smaller big lot contract YoY as Mazda Powertrain Manufacturing (Thailand) bought 131 rai in 1Q13 but Summit Auto bought more than 300 rai in 1Q12. Half of the 24 contracts in the period came from new clients. It has raised its full year target to 1,800 rai (versus 2,317 rai in 2012) from 1,600 rai, backed by high BoI applications and greater marketing. 1Q13 land sales are ~23% of its revised target and it guides to high land sales QoQ in 2Q13. 
GHECO-1 operations slight below expectations, but forecast maintained. In 1Q13, utilization at GHECO-1 was 80%, but we expect production rate to rise gradually after its 45-day shutdown in May-June. We maintain our forecast as the lower operations are expected to be offset by FX gains in 1Q13.  
Growing utility sales and RBF & warehouse rentals. Water sales rose 11% YoY and 2% QoQ to about 246K cum in 1Q13. Though in volume terms growth was small QoQ, the change in product mix leads us to expect higher revenue and wider margin. It boosted the proportion of high-margin potable water to 44% in 1Q13 from 39% in 1Q12 and 40% in 4Q12 and reduced low-margin raw water commensurately. RBF leases shot up 53% YoY and 12% QoQ to 264K sqm in 1Q13, with warehouse rentals jumping 71% QoQ to 28.7K sqm. Both RBF and warehouse rentals are tracking our forecast.
Upside risks, share price catalysts. 1) Right of way revenue of ~Bt400mn for its eight SPPs. 2) Seven new SPPs in its IEs, to which it could sell up to 30-40 rai/project, add 5,000-6,000 cum/day to water sales, and profit of Bt50-60mn/project if it takes 25%. At least three deals are expected by 2014 and four by 2015. Note that SPP1, in which it invested, will start equity contribution in 2Q13. 3) Margin upside on price rises for all IEs, especially Hemaraj Eastern Industrial Estate (Map Ta Phut) and The Park condo. 4) Setup of REIT at some point. 5) PPA for wind power in the next few months, with profit contribution of ~Bt160mn p.a. from 2014. 6) Hidden assets – 2 rai of raw land behind UM Tower, 3.5 rai on Rama III Rd and 228 rai on Koh Lan.
Maintain BUY. It has a well diversified income base with ~40% of 2013 profit secured by recurring income, giving it good visibility: it is the best pick in a period of caution.