Hunza Properties: 10th Anniversary special dividend
* 9M2010 net profit of RM37 million was within expectations; accounting for 77% of street’s FY2010E net profit of RM47.9 million and 72% of our RM45.3 million. Hunza Properties (Hunza) results were driven by improved 9M2010 sales of RM95.6 million (+173% y-o-y). Gurney Paragon Condo (GPC) and Infiniti take-up rates achieved 61% and 80% vs last quarters 58% and 75%, respectively, on the back of recovering economic conditions and higher completion levels which tend to expedite sales.
* GPM in the midst of piling works while substructure contracts have been awarded. Commencement of GPM works will definitely instill more buyers’ confidence and we expect visible works of GPM to rake in higher GPC sales.
* Y-o-y, 9M10 net profit more than doubled (+104% y-o-y), attributed to Hunza owning 100% of Infiniti vs 90% profit sharing basis previously. Furthermore, stronger billings were felt as Infiniti is 100% completed while GPC at 51% completion stages. Positively, we can expect Hunza to continually increase Infiniti’s pricing given completion premiums and recovering economic conditions.
* 3Q2010 pretax profit was 17% lower q-o-q to RM14.6 million. Topline was flat at
RM58.5 million (-1% q-o-q). 3Q2010’s seasonally weaker sales of RM21.2 million (-43% q-o-q) given the festive month (Chinese New Year). Ebitda margins also compressed to 26.7% (-4.4ppt q-o-q). Hunza is expensing the GPC show units, which were torn down to make way for Gurney Paragon Mall (GPM) construction.
* Special interim DPS of 2.5sen (single tier) as 10th Anniversary gift to shareholders. This results in a bumper dividend year as we add on the special dividend to our FY2010E estimates, resulting in 60% increase in FY2010E DPS to 6.7sen (GDPS of 8.9sen or 7.3% yield).
* FY2010-11E net profit unchanged at RM51.3 million (+86% y-o-y) - RM47 million (-8% y-o-y). Take-up rates and construction progress of GPC are on track with our estimates. An unbilled sale of RM167.7 million as at March 31, 2009, provides less than one-year visibility; unbilled sales has shrunk substantially or 20% y-o-y due to no new projects to replace higher billings and sales of on-going projects.
* Maintain “trading buy” with RM1.96 fair value, based on our FD SOP RNAV. We still think cash release timings are still risky, although prospects are improving with increasing take-up rates for GPC. We are also weary of declining net profit trends, unless new projects are launched (e.g. Alila 2). Nonetheless, Hunza provides excellent trading opportunities with current trough valuations; 1) FY2010-11E PER of 4.3-4.7x vs historical 7.7 x and peer’s 9x, 2) 0.6-0.5x FY2010-11E PBV vs historical 0.9x and peer’s 0.9x. Additionally, Hunza is dishing our higher FY2010E dividend yield vs sector’s average of 2% to 3%.