Hemaraj Land & Dev (HEMRAJ TB) Thanachart Securities. Delay to GHECO-1. BUY (Unchanged) TP: Bt3.30 (From Bt3.00) 14 MARCH 2012

Transcription

1 BUY (Unchanged) TP: Bt3.30 (From Bt3.00) 14 MARCH 2012 Change in Numbers Upside : 24.1% Hemaraj Land & Dev (HEMRAJ TB) Delay to GHECO-1 Thanachart Securities The COD of the GHECO-1 project looks likely to be delayed from our previous expectation of April to the worst case of the end of September. Assuming GHECO-1 contributes from 4Q12, we cut 2012F earnings by 40% but there s no impact on the DCF value of GHECO-1. BUY to a new SoTP-based TP of Bt3.30. Worst case, GHECO-1 delayed to end-september The COD of the GHECO-1 IPP project seems likely to be delayed from our assumption of the beginning of April this year due to some operating procedure details not yet meeting requirements. For the licenses, GLOW expects the regulator to approve the generating license at the meeting on 15 March and the operating permit should be received shortly after that. The best possible case for the COD is by the end of April while the worst case is the end of September. 2012F earnings slashed by 40% The delay in operating commencement of GHECO-1 leads us to slash this year s earnings by 40% from Bt2.3bn to Bt1.4bn to reflect the worst-case scenario of a six-month hold-up to GHECO-1. With a three-month contribution in 4Q12, we project GHECO-1 to contribute Bt400m or 29% to HEMRAJ s 2012F earnings. With a full-year contribution next year, we expect a contribution of Bt1.8bn, or 60% of 2013F earnings. No impact on DCF value of GHECO-1 We don t expect the COD delay to impact the DCF value of the GHECO-1 project as the concession lasts for 25 years from whatever the COD date is. In fact, there should be a slight positive impact as the project contractor will have to pay a fine, or delayed liquidated damage (DLD), of Bt16.8m/day versus EGAT s charge of Bt2.6m/day. However, HEMRAJ will receive the fine payment for its 35% holding as equity income in January. GLOW is considering whether to book the fine from February through its P&L or as spare parts inventory. BUY to a new TP of Bt3.30/share Despite the postponement in earnings contribution from GHECO-1, we reiterate our BUY call on HEMRAJ to a SoTPbased TP of Bt3.30/share with GHECO-1 accounting for 33% of our fair value. Note that the 10% increase in TP is due purely to falling net debt at the end of Although we have cut 2012F earnings, HEMRAJ looks set to deliver strong EPS growth of 152% in 2012F and 113% in 2013F. Upside to our projection lies with the recent announcement of its land sales target being revised up to 1,700 rai (new record high) for 2012 versus our 1,500 rai assumption. We prefer Amata Corp (AMATA, BUY; Bt25.00 TP) to HEMRAJ as it offers higher share price upside to our TP while its earnings more exposed to land sales. AMATA targets 3,000 rai in land sales this year. COMPANY VALUATION PHANNARAI TIYAPITTAYARUT phannarai.von@thanachartsec.co.th Y/E Dec (Bt m) F 2013F 2014F Sales 4,150 5,079 5,743 5,649 Net profit 537 1,395 2,978 3,012 Consensus NP 2,075 2,445 na Diff from cons (%) (32.8) 21.8 na Norm profit 554 1,395 2,978 3,012 Prev norm profit 2,314 3,005 3,034 Chg from prev (%) (39.7) (0.9) (0.8) Norm EPS (Bt) Norm EPS gr (%) (56.6) Norm PE (x) EV/EBITDA (x) P/BV (x) Div. yield (%) ROE (%) Net D/E (%) PRICE PERFORMANCE (Bt/shr) Hemaraj Land and Development Rel to SET Index 1.0 (10) M ar - 11 Jun- 11 Sep - 11 Dec- 11 M ar - 12 COMPANY INFORMATION Price as of 13 Mar 12 (Bt) 2.66 Market cap (US$ m) 842 Listed shares (m shares) 9,705 Free float (%) 62 Avg daily turnover (US$ m) M price H/L (Bt) 2.8/1.7 Sector Industrial Estate Major shareholder Horrungrueng Family 15.01% Sources: Bloomberg, Company data, Thanachart estimates (%) This report is prepared by Thanachart Securities. Please contact our salesperson for authorisation. Please see the important notice on the back page.

2 COMPANY NOTE HEMRAJ TB PHANNARAI TIYAPITTAYARUT Ex 1: HEMRAJ s Land Sales (rai) 1,800 1,600 1,400 1,621 1,264 1,670 1,500 1,200 1, , F 2013F Sources: Company data, Thanachart estimates Ex 2: HEMRAJ s Normalized Earnings (Bt m) Earnings (Ex GHECO-One) GHECO-One 3,500 3,000 2,500 2,000 1,500 1, %41%39% 31% 31%30% 60% 58%57% 52% 0% 0% 0% 29% 13% 37% -19% 0% 0% 0 0% (500) F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F Sources: Company data, Thanachart estimates Ex 3: Key Assumptions Changes 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2021F 2022F Equity income from GHECO-One (Bt m) - New 400 1,777 1,760 1,725 1,525 1,146 1,111 1, Old 1,298 1,777 1,760 1,725 1,525 1,146 1,111 1, Change (%) (69.2) Net profit (Bt m) - New 1,395 2,978 3,012 3,054 2,950 2,588 2,706 2,760 2,601 2,799 2,967 - Old 2,314 3,005 3,034 3,077 2,974 2,619 2,738 2,793 2,635 2,834 3,003 Change (%) (39.7) (0.9) (0.8) (0.8) (0.8) (1.2) (1.2) (1.2) (1.3) (1.2) (1.2) Source: Thanachart estimates THANACHART SECURITIES 2

3 COMPANY NOTE HEMRAJ TB PHANNARAI TIYAPITTAYARUT Ex 4: HEMRAJ s SoTP Valuation Landbank Available Common Sellable area NAV Sum of Equity Value/ land Area Developed Raw land Developed Undeveloped the parts Value share (rai) (rai) (rai) (rai) (Bt m) (Bt m) (%) (Bt m) (Bt) Hemaraj CIE ESIE 1, ,870 Hemaraj ESIE 4,333 1, , ,722 Hemaraj EIE ,024 Hemaraj SIL ,458 Hemaraj RIL 1, , ,544 Total 9,180 2, ,160 1,763 12,171 Total land value 13,934 Total land 1.3x 18,114 50% 15, GHECO-1 (35% holding) 12,116 33% 10, RBFs 1,953 5% 1, Residential 444 1% Commercial - Office 725 2% Fixed assets (30% discount) 2,971 8% 2, Other assets (investments in associates excl. GHECO-One) 265 1% Total enterprise value 36,588 Less Net debt 4,724 Less Minority interest 326 Equity value 31,538 Equity value/share (Bt) 3.25 Source: Thanachart estimates THANACHART SECURITIES 3

4 COMPANY NOTE HEMRAJ TB PHANNARAI TIYAPITTAYARUT Valuation Comparison Ex 5: Valuation Comparison With Regional Peers EPS growth PE P/BV EV/EBITDA Div Yield Name BBG Code Country 12F 13F 12F 13F 12F 13F 12F 13F 12F 13F (%) (%) (x) (x) (x) (x) (x) (x) (%) (%) Suzhou New District Hi-Tech CH China na na na na na na na na na na Jiangsu Dagang Co., Ltd CH China na na na na na na Mitsubishi Logistics Corp 9301 JP Japan na na na na Amata Corporation * AMATA TB Thailand Hemaraj Land & Dev * HEMRAJ TB Thailand Rojana Industrial Park ROJNA TB Thailand Ticon Industrial Connection * TICON TB Thailand Average Source: Bloomberg Note: * Thanachart estimates, using normalized EPS THANACHART SECURITIES 4

5 APPENDIX HEMRAJ TB PHANNARAI TIYAPITTAYARUT COMPANY DESCRIPTION COMPANY RATING Hemaraj Land and Development Pcl (HEMRAJ) is a leading developer of industrial estates, utilities and property in Thailand. It develops and manages six industrial estates of 31,350 rai located mostly on the Eastern Seaboard of Thailand with automotive, petrochemical and other clusters comprising 475 distinct customers in which 167 are automotive customers. Manage ment Financial Risk Rating Scale Very Strong 5 Strong 4 Good 3 Fair 2 Liquidity *Corp. Governance Weak 1 None 0 Source: Thanachart Source: Thanachart; *CG Awards THANACHART S SWOT ANALYSIS S Strength Leading player in a niche industry (industrial estate business) with a limited number of operators. Multiple integrated clusters, i.e., auto and chemical in the industrial estates. W Weakness Core business, industrial land sales, has high earnings volatility. Land sales are even harder to predict given the new revenue recognition method. Capital-intensive business. Huge land bank available for sale in strategic locations. O Opportunity Auto capacity expansions. Business diversification into utilities, especially power. T Threat Highly sensitive to economic and political risk. Global economic crisis. Contribution from GHECO-One power plant project with its COD this year will enhance its recurring income level. CONSENSUS COMPARISON Consensus Thanachart Diff Target price (Bt) % Net profit 12F (Bt m) 2,075 1,395-33% Net profit 13F (Bt m) 2,445 2,978 22% Consensus REC BUY: 17 HOLD: 2 SELL: 1 RISKS TO OUR INVESTMENT CASE There is downside risk to our earnings projection if the COD of the GHECO-1 power project is delayed from our expectation. If the global economy recovers at a slower pace than we currently expect. HOW ARE WE DIFFERENT FROM THE STREET? Our earnings forecast in 2012 is lower than the consensus as we factor in a possible delay to GHECO-1 to the end of September However, our SoTP-based TP is 12% above the Street s. Sources: Bloomberg consensus, Thanachart Source: Thanachart THANACHART SECURITIES 5

6 FINANCIAL SUMMARY HEMRAJ TB PHANNARAI TIYAPITTAYARUT INCOME STATEMENT FY ending Dec (Bt m) 2010A 2011A 2012F 2013F 2014F Three-year normalized EPS CAGR of 76% in F is driven by strong land sales and higher contribution from the utility business GHECO-1 will play a major role in boosting HEMRAJ s earnings base to Bt2bnplus from 2013F Sales 4,322 4,150 5,079 5,743 5,649 Cost of sales 2,703 2,361 2,818 3,167 3,094 Gross profit 1,619 1,790 2,262 2,576 2,555 % gross margin 37.5% 43.1% 44.5% 44.9% 45.2% Selling & administration expenses Operating profit 1,067 1,151 1,548 1,773 1,783 % operating margin 24.7% 27.7% 30.5% 30.9% 31.6% Depreciation & amortization EBITDA 1,253 1,343 1,778 2,044 2,076 % EBITDA margin 29.0% 32.4% 35.0% 35.6% 36.7% Non-operating income Non-operating expenses Interest expense (284) (397) (425) (404) (373) Pre-tax profit ,224 1,474 1,532 Income tax After-tax profit ,040 1,252 1,303 % net margin 21.4% 18.0% 20.5% 21.8% 23.1% Shares in affiliates' Earnings 422 (133) 414 1,791 1,774 Minority interests (71) (60) (59) (66) (65) Extraordinary items 135 (17) NET PROFIT 1, ,395 2,978 3,012 Normalized profit 1, ,395 2,978 3,012 EPS (Bt) Normalized EPS (Bt) BALANCE SHEET FY ending Dec (Bt m) 2010A 2011A 2012F 2013F 2014F Due to the nature of its business, it carries huge land inventory for sale ASSETS: Current assets: 11,055 11,814 10,022 10,559 10,642 Cash & cash equivalent 3,517 3,718 2,753 3,689 3,927 Account receivables Inventories 7,278 7,890 6,947 6,507 6,358 Others Investments & loans 3,624 4,471 4,511 4,811 4,811 Net fixed assets 2,595 3,194 5,803 6,721 6,933 Other assets 1, Total assets 18,569 20,010 20,884 22,311 22,603 LIABILITIES: Current liabilities: 1,905 2,389 3,065 3,384 2,453 Account payables Bank overdraft & ST loans Current LT debt Others current liabilities 911 1,630 1,546 2,002 1,144 Total LT debt 7,231 8,134 7,413 6,514 6,166 Others LT liabilities Total liabilities 9,402 10,881 10,917 10,393 9,105 Minority interest Preferreds shares Paid-up capital 3,882 3,882 3,882 3,882 3,882 Share premium Warrants Surplus (32) (32) (32) (32) (32) Retained earnings 4,511 4,514 5,294 7,178 8,693 Shareholders' equity 8,801 8,803 9,582 11,467 12,981 Sources: Company data, Thanachart estimates THANACHART SECURITIES 6

7 FINANCIAL SUMMARY HEMRAJ TB PHANNARAI TIYAPITTAYARUT CASH FLOW STATEMENT FY ending Dec (Bt m) 2010A 2011A 2012F 2013F 2014F Contribution from GHECO-1 from late 2012 will lift free cash flow levels Earnings before tax ,224 1,474 1,532 Tax paid (65) (132) (186) (201) (237) Depreciation & amortization Chg In working capital (742) (297) Chg In other CA & CL / minorities (201) , Cash flow from operations 152 1,094 2,239 4,185 2,652 Capex (259) (786) (2,833) (1,183) (500) ST loans & investments LT loans & investments (2,716) (847) (40) (300) 0 Adj for asset revaluation (0) Chg In other assets & liabilities 1, (10) Cash flow from investments (1,513) (789) (2,818) (1,103) (510) Debt financing 4, (1,052) (407) Capital increase Dividends paid (102) (80) (616) (1,093) (1,497) Warrants & other surplus (600) (455) Cash flow from financing 3,969 (104) (387) (2,146) (1,904) Free cash flow (107) 308 (594) 3,002 2,152 VALUATION FY ending Dec 2010A 2011A 2012F 2013F 2014F Very strong EPS growth of over 100% both in 2012F and 2013F Normalized PE (x) Normalized PE - at target price (x) PE (x) PE - at target price (x) EV/EBITDA (x) EV/EBITDA - at target price (x) P/BV (x) P/BV - at target price (x) P/CFO (x) Price/sales (x) Dividend yield (%) FCF Yield (%) (0.4) 1.2 (2.3) (Bt) Normalized EPS EPS DPS BV/share CFO/share FCF/share (0.0) 0.0 (0.1) Sources: Company data, Thanachart estimates THANACHART SECURITIES 7

8 FINANCIAL SUMMARY HEMRAJ TB PHANNARAI TIYAPITTAYARUT FINANCIAL RATIOS FY ending Dec 2010A 2011A 2012F 2013F 2014F EPS decline in 2011 is a result of the booking of a Bt394m forex gain (as part of equity income) in 2010, the forex loss in 2011 and the delay in land sales realization due to the new accounting method despite healthy land sales volume Growth Rate Net profit (%) (62.0) EPS (%) (62.0) Normalized profit (%) (56.6) Normalized EPS (%) (56.6) Dividend payout ratio (%) Operating performance Gross margin (%) Operating margin (%) EBITDA margin (%) Net margin (%) D/E (incl. minor) (x) Net D/E (incl. minor) (x) Interest coverage - EBIT (x) Interest coverage - EBITDA (x) ROA - using norm profit (%) ROE - using norm profit (%) DuPont ROE - using after tax profit (%) asset turnover (x) operating margin (%) leverage (x) interest burden (%) tax burden (%) WACC (%) ROIC (%) NOPAT (Bt m) 1, ,316 1,507 1,515 Sources: Company data, Thanachart estimates THANACHART SECURITIES 8

9 DISCLAIMER HEMRAJ TB PHANNARAI TIYAPITTAYARUT General Disclaimers And Disclosures: This report is prepared and issued by Thanachart Securities Public Company Limited (TNS) as a resource only for clients of TNS, Thanachart Capital Public Company Limited (TCAP) and its group companies. Copyright Thanachart Securities Public Company Limited. All rights reserved. The report may not be reproduced in whole or in part or delivered to other persons without our written consent. This report is prepared by analysts who are employed by the research department of TNS. While the information is from sources believed to be reliable, neither the information nor the forecasts shall be taken as a representation or warranty for which TNS or TCAP or its group companies or any of their employees incur any responsibility. This report is provided to you for informational purposes only and it is not, and is not to be construed as, an offer or an invitation to make an offer to sell or buy any securities. Neither TNS, TCAP nor its group companies accept any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. The information and opinions contained herein have been compiled or arrived at from sources believed reliable. However, TNS, TCAP and its group companies make no representation or warranty, express or implied, as to their accuracy or completeness. Expressions of opinion herein are subject to change without notice. The use of any information, forecasts and opinions contained in this report shall be at the sole discretion and risk of the user. TNS, TCAP and its group companies perform and seek to perform business with companies covered in this report. TNS, TCAP, its group companies, their employees and directors may have positions and financial interest in securities mentioned in this report. TNS, TCAP or its group companies may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any entity mentioned in this report. Therefore, investors should be aware of conflict of interest that may affect the objectivity of this report. THANACHART SECURITIES 9

10 DISCLAIMER HEMRAJ TB PHANNARAI TIYAPITTAYARUT Recommendation Structure: Recommendations are based on absolute upside or downside, which is the difference between the target price and the current market price. If the upside is 10% or more, the recommendation is BUY. If the downside is 10% or more, the recommendation is SELL. For stocks where the upside or downside is less than 10%, the recommendation is HOLD. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on the market price and the formal recommendation. For sectors, we look at two areas, i.e., the sector outlook and the sector weighting. For the sector outlook, an arrow pointing up, or the word Positive, is used when we see the industry trend improving. An arrow pointing down, or the word Negative, is used when we see the industry trend deteriorating. A double-tipped horizontal arrow, or the word Unchanged, is used when the industry trend does not look as if it will alter. The industry trend view is our top-down perspective on the industry rather than a bottom-up interpretation from the stocks we cover. An Overweight sector weighting is used when we have BUYs on majority of the stocks under our coverage by market cap. Underweight is used when we have SELLs on majority of the stocks we cover by market cap. Neutral is used when there are relatively equal weightings of BUYs and SELLs. Thanachart Securities Pcl. Research Team 28 Floor, Siam Tower Unit A1 989 Rama 1, Pathumwan Road, Bangkok Tel: Pimpaka Nichgaroon, CFA Head of Research Economics & Strategy pimpaka.nic@thanachartsec.co.th Sarachada Sornsong Banks, Telecom sarachada.sor@thanachartsec.co.th Phannarai Tiyapittayarut Property, Retail phannarai.von@thanachartsec.co.th Supanna Suwankird Energy, Utilities supanna.suw@thanachartsec.co.th Saksid Phadthananarak Construction, Transportation saksid.pha@thanachartsec.co.th Aungkana Tatiyakavee, CFA Auto, Electronics, Food aungkana.tun@thanachartsec.co.th Siriporn Arunothai Ad Hoc Research, Healthcare siriporn.aru@thanachartsec.co.th Noppadol Pririyawut Senior Technical Analyst noppadol.pri@thanachartsec.co.th Youssef Abboud Cement, Energy, Shipping youssef.abb@thanachartsec.co.th Kalvalee Thongsomaung Assistant Analyst, Media kalvalee.tho@thanachartsec.co.th THANACHART SECURITIES 10