Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)

Raise in land sales target likely. In 1H13, HEMRAJ sold 1,190 rai of IE land, -17.8% YoY
but accounting for 66% of its full year target of 1,800 rai. With large potential clients in
the works, it is likely to lift its 2013 target for the second time this year. In another
deal, SAIC Motor-CP Co., an automotive industry joint venture between China-based
automaker SAIC Motor Corporation and Thailand’s CP group, has leased 17.3K sqm of
ready-built factories (RBF) from HEMRAJ. In our view, this opens up a chance to get in
on future plant expansion by this JV and also become a magnet for SAIC Motor’s
automotive supply chains.
2Q13F (released August 13): Expect stronger YoY, weaker QoQ. HEMRAJ’s 2Q13F
performance is expected to come in at Bt623mn, down 31% QoQ but soaring YoY. The
impressive YoY growth comes from more deed transfers (628 rai in 2Q13 versus 550 rai
in 2Q12) and better gross margin on the sale of land due to a price increase and lower
loss from GHECO-1 (-Bt120mn in 2Q13 versus -Bt275mn in 2Q12). The fall QoQ comes
from loss from the shutdown of GHECO-1 plus FX loss versus a FX gain in 1Q13. Total
contribution from GHECO-1 is a loss of Bt120mn in 2Q13F versus profit of Bt356mn in
1Q13. Excluding GHECO-1, HEMRAJ’s profit would grow 36% QoQ to Bt743mn, backed by
more deed transfers and wider gross margin in its IE plus condo sales.
Unlocking assets prompts earnings upgrade. HEMRAJ plans to set up a property
fund to which it will spin off 150K sqm of RBF by 4Q13. We estimate the fund size at
~Bt4.5bn and for HEMRAJ to book Bt1.1bn in net profit. Taking this against the FX loss,
we raise our 2013 forecast by 36% to Bt3.7bn. However, our PT is unchanged as we
have already factored in the market value of the RBFs.
GHECO-1 operations still not smooth. GHECO-1 completed its seven-week
warrantee maintenance on July 7 and started back up again. Unfortunately, operations
continued bumpy and led to another brief shutdown. Each day of shutdown costs it
~Bt5mn in net profit, working out to ~Bt1.8mn for HEMRAJ’s shareholding. We
continue to be concerned about this plant. For greater details please refer to our
report on GLOW, also issued today, August 8, 2013.
Maintain BUY. HEMRAJ remains our favorite stock in the segment, with a well
diversified income base and a large portion of recurring income and stable utilities
income that give it good visibility. In the near term, the setup of a property fund and
probable raise in its land sales target could be share price catalysts. With its sound
fundamentals and attractive TTR of 56%, we reiterate BUY.