Hemaraj Land & Development

Hemaraj Land & Development Plc (HEMRAJ) 

 

4Q14 in line

HEMRAJ reported a 4Q14 net profit of Bt507m, up 6% QoQ but down 77% YoY. That made for an FY14 bottom-line dive of 31% YoY to Bt3,012m, in line with our model (but 7% below the consensus estimate). HEMRAJ won’t pay a dividend for FY14, due to its pending acquisition by WHA (we expect a DPS of Bt0.07 be paid for 2H14 operations after WHA has completed the deal).

Results highlights

The 31% YoY plunge in net income was driven by much lower land transference and diminished factory rental revenue. Land transference slumped from 2,318 rai (Bt6,191m) in 4Q13 to 1,254 rai (Bt3,680m) in 4Q14. On the other hand, FY14 power income shot up a whopping 196% YoY and services receipts rose 3% YoY.

Outlook

We expect HEMRAJ’s top-line to be flattish for FY15, as land sales probably won’t start recovering till 2H15 and power income doesn’t have much scope to expand, given that no new generating capacity is due to start operating this year.  HEMRAJ’s recently bought Bo Win Clean Energy SSP, but it isn’t scheduled to start operating till 2016. Should WHA’s acquisition of HEMRAJ be successful, HEMRAJ will pay a large special dividend toward year-end after divesting assets to a REIT.

What’s changed?

We have factored the additional SPP power revenue into our FY16 forecast, but we haven’t yet modeled for asset divestments. Our back-of-the-envelope calculation suggests an additional FY15 DPS payout of Bt0.50 on top of normal dividends. There may be some slippage in YoY electricity generating income in FY15, as Gheco-One and the Houy Ho hydropower station both had a very good operational year in FY14.

Recommendation

We maintain our HOLD rating and target price (Bt4.50) unchanged. Our PER valuation peg of 15.0x is below HEMRAJ’s long-term average of 16.0x, based on a neutral outlook for land sales and no growth in electricity generating income for FY15. Having said that, we believe the stock will be a good dividend play, once WHA has completed acquiring it and starts divesting assets. We anticipate hefty special dividends in 2015 and 2016 as WHA seeks to reduce its gearing.