Hunza Properties (RHB Research), maintain ‘market perform’, fair value of RM1.43

Hunza Properties: Better progress billings from Gurney Paragon

* Within expectations. 9MFY06/10 net profit came in within expectations at 78% to 80% of RHB Research Institute’s and consensus estimates. Take-up rates of projects in Penang, ie Gurney Paragon and Infinity’s picked up marginally to 61% (from 58% in December 2009) and 80% (from 75% in December 2009) respectively. As at March 2010, the company’s unbilled sales stood at RM167.3 million, or 0.7x of our FY2010 revenue projection.

* Infinity and Gurney Paragon on track. Work progress for RM250 million condominium project Infinity and RM450m mixed commercial development project Gurney Paragon is on track. Certificate of fitness for occupancy for Infinity was obtained in end-April 2010, while Gurney Paragon is now 51% completed that is in line with the company’s and our expectations.

* Bayan Baru project to underpin earnings from 2012. Over the medium term, earnings driver will come from a new project on a 42-acre land in Bayan Baru, Penang. We understand that the development plan is still pending finalisation but indications are the project is likely to include apartments, a hotel and a medical centre. We only expect the maiden launch from the project by 2012. We have yet to reflect contribution from this project in our forecasts.

* Forecast. Maintained.

* Risks. The risks include: 1) potential negative perception on Gurney Paragon from potential buyers after the recent stop-work incident; 2) competition from peers; and 3) delays in launches and approvals.

* Investment case. Indicative fair value of RM1.43 based on a 50% discount to its estimated RNAV/share of RM2.85 (see Table 3). The discount is to reflect the company’s small market capitalisation and low share liquidity. Maintain “market perform”.