Hemraj Land & Dev. (HEMRAJ)

Hemraj Land & Dev. (HEMRAJ)

- Good profit in 4Q13, thanks to factory sale and core business
HEMRAJ announced 4Q13 net profit of B2.25bn; B1.46bn of which
was a gain on sale and lease of factories under financial lease from
Hemaraj Industrial Property and Leasehold Fund (HPF). Normalized
profit was B780m, growing 24.8%qoq and 23.5%yoy, close to our
projection. Income from sales of land and condominiums in this
quarter was B1.78bn, increasing 34%qoq from 720 rai of land
transferred, up from 440 rai in 3Q13. Income from utilities service
stayed flat at B667m. Moreover, the company recognized a shared
profit of B207m (after Fx loss), mostly from a coal-fired Gheco-One
power plant that could run almost at its full capacity. For FY2013, the
total income was B8.8bn, rising 37%yoy due to new land sales of
2,200 rai. Average gross margin shifted to 47.8%, making normalized
profit margin in 2013 high at 30.1%. The normalized profit was
B2.87bn, growing 28.1%yoy. Net gearing dropped to 0.68x, which is
a strong level, after the company received B4.3bn in cash from
factory sales.
- Recurring income strengthens profit base
HEMRAJ has a conservative land sales target in 2014 at 1,600 rai
(versus 2,200 rai in 2013), as 10-15% of new customers have
postponed their purchases while some have already made the
contract earlier this year. Late this year, the company is going to
launch the eighth industrial estate near Hemaraj Eastern Seaboard
Industrial Estates (Rayong) to support customers in automotive
business. HEMRAJ has budget to purchase more lands (from current
7,500 rai land reserve). Construction of other eight SPP power plants
will be completed from 2017 on. Thus, HEMRAJ's shareholding in
power plants would increase from 317 MW by 256 MW. We project
HEMRAJ's FY2014 normalized profit to grow slightly by 4%yoy to
B3bn, as water sales volume increases every year, and share of profit
from Gheco-One and SPP1 plants would be booked for a full year. At
the same time, income from land sales is projected to decline as
current backlog at B2.9bn is not very high; 80% of which is expected
to be transferred this year.
- Fair value is B3.68. High dividend for 2H13
HEMRAJ's business structure consists of recurring income from
utilities service, power sales, and factories and warehouses for rent,
so its earnings would not be affected much from the downtrend of
land selling business. We derive HEMRAJ's FY2014 fair value at B3.68,
with 12x P/E ratio. We reiterate to buy. Because of non-recurring gain
from the sale of factory, we expect 2H13 dividend as high as
B0.14/share or FY2013 dividend yield of 6.6%.