Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ)
Investment thesis
HEMRAJ hosted an analyst meeting yesterday to update on its outlook. Management expressed confidence in the prospects for 2H13 land bookings, guiding for presales of 2,100 rai, based on current customer demand. Even though technical problems at Gheco-One will limit equity income, we expect the firm to post 16% HoH core earnings growth in 2H13. In addition, there is scope for upside from our current earnings projection from the planned launch of a property fund in 4Q13. Our BUY rating stands with an SOTP-based YE13 target price of Bt4.5, which translates into a core PER of 13.6x.
Presales target of 2,100 rai  looks achievable
Although in 7M13, net applications for BOI tax incentives declined 4% YoY in terms of investment value and FDI net applications fell 10%, management confident that its FY13 land bookings target of 2,100 rai (just revised up from 1,800 rai) is achievable. There appears to be only limited downside risk to the guidance—more than half of the target (1,190 rai) has already been closed and the historical record shows that bookings in the second-half are generally stronger HoH.
Gheco-One’s technical problems will drag on run rate till 4Q13
The power plant’s heating system is not an easy fix. As such, Gheco-One’s output is limited to 80% of nameplate capacity until the end of September, then will rise to 90% in early 4Q13 and 100% by YE13. We have downsized our full-year estimate of equity income from the asset by Bt35m to 638m and trimmed our FY13 earnings forecast by 1%. There is only a negligible impact on our YE13 target price.
Anticipate core profit growth of 16% HoH in 2H13
We believe that 2H13 core profit will rise 16% HoH even though equity income from Gheco-One will be limited by its technical problems (note that the plant was out for seven weeks during 2Q13). Revenue from land sales, utilities fees and rental income should increase HoH.
Scope for profit forecast upgrade from launch of a property fund
Management expects to launch a property fund before YE13. Factory space totaling 150,000sq.m is to be sold to the fund. The aggregate book value of the factories has yet to be finalized, but it now appears that it will be lower than we previously assumed. Management guides for a significant margin, as the construction cost of the factories was booked years ago when construction was cheaper. As such, the one-time gain from the asset spin-offs may be around Bt1bn (we previously assumed a range of only Bt500-600m).