RHB Research Hunza Properties' exceptional net profit skewed by EIs

Hunza Properties

- Slightly below expectations. Hunza’s 1QFY11 estimated core net profit of RM12.5m (-1.8% yoy; -10.4% qoq) came in slightly below our expectation by 6% but in line with consensus estimate. Sequential turnover fell 12.4%, continued to be underpinned by progressive billings from the two residential towers of Gurney Paragon. Headline net profit of RM34.7m, however, was skewed by an exceptional item, mainly made up of a revaluation surplus amounted to RM22.1m arising from Gurney Paragon mall, office and a piece of land. As expected, no dividend was declared in 1QFY11.

- Unbilled sales declined to RM82m. As at Sept 2010, unbilled sales continued to decline to RM82m from RM103m in the previous quarter. Sales for Hunza’s built-then-sell bungalow project – Mutiara Seputeh has increased to 43%, vs 34% in 4QFY10. Meanwhile, take-up rate for Gurney Paragon and Inifiniti improved slightly to 64% and 92%, from 63% and 87% in the last quarter. Currently, Gurney Paragon is roughly 84% completed. Superstructure works are in progress, and both East and West Tower are up to Level 43. As for Gurney Paragon mall, basement construction works are still in progress.

- Forecast. We incorporate the revaluation gain on our headline net profit forecast, but normalised net earnings remained unchanged at RM52.6m.

- Risks. The risks include: 1) slow down in take-up rate due to potential negative perception on Gurney Paragon after the stop-work incident; 2) competition from other developers in Penang; and 3) delays in launches and approvals.

- Investment case. We are keeping our indicative fair value at RM1.58, based on an unchanged 50% discount to our RNAV per share estimate of RM3.16. Until we see more new launches in the pipeline and better prospects of the company, we maintain our Market Perform rating on the stock (Hunza was downgraded from Trading Buy in our sector report dated 20th Oct 2010).