‘Outperform’ on Hunza Properties
Posted on | July 24, 2007
By THE EDGE
CIMB Research has an “outperform” on Hunza Properties Bhd, which is its preferred choice of a deep-value developer with Penang exposure.
It has raised its end-CY07 target price from RM4.50 to RM4.80, based on an unchanged 40% discount to its 20 times sector P/E target. Re-rating catalysts include higher-than-expected sales and margins, and entry of reputable partners for its Gurney Drive project.
On the company’s property projects and sales, the research house said since Gurney Paragon’s soft launch in March 2007, take-up rates excluding registered interests were about 11% (RM42 million sales) as at end-June 2007.
“The response is encouraging considering the lack of aggressive marketing activities, absence of a show unit, and cancellation of early bird discounts. Furthermore, despite the 10% across-the-board price increase effective end-June 07, the take-up rate has inched up to 15%,” it said.
Post price hike, Gurney Paragon’s average selling prices are now RM430 to RM530 per sq ft, up from RM420 psf during the initial launch in April 20 07.
CIMB Research said Hunza Properties believes that the final average selling prices will reach RM500 to RM550 psf, translating into an effective 20%-30% increase from the initial listed prices.
Accordingly, Gurney Paragon’s gross development value (GDV) was expected to rise to RM380 million from RM344 million previously.
Hunza Properties’ beach front project, Infinity, recorded a 11% take-up rate as at end-June 2007. It has stopped the 5% early bird discount and is now selling units at the listed price of RM420 to RM450 psf.
“With the termination of the discounts, Infinity’s GDV is estimated to increase to RM240 million from RM225 million previously,” it said.
The research house said Bandar Putra Bertam holds strong promise as it has been earmarked as an administrative, education and automotive hub, and Hunza Properties is one of only two developers within the area.
Hunza Properties is focusing on mid- to high-end products. Conservatively, this project carries a balance GDV of close to RM1 billion and should sustain development efforts over the next eight to 10 years.
The company is also reaping the most from its landbank. When the project started in 2002, the group reaped about RM1.2 million GDV on a per acre basis. Current launches extract about RM1.6 million GDV per acre.
The group plans to increase this to RM2 million GDV per acre in the immediate term to maximise the development potential of this land bank.
Hunza Properties also expects the Prime Minister’s detailed announcement of the Northern Corridor Economic Region (NCER) at the end of the month to benefit this township development.
The group has of late been holding back launches in anticipation of further appreciation of land values after favourable NCER announcements. To recap, Hunza Properties is carrying its Bandar Putra Bertam land at less than RM2 psf in its books. Recent land transactions within the vicinity hovered around RM7 to RM10 psf.
CIMB Research said Hunza Properties is also attracting strong foreign buying interest especially for its newer, niche projects — Alila and Mutiara Seputeh — where foreign buyers account for some 30% of property sales for each project.
With the anticipated completion of Alila by FY2008 and Mutiara Seputeh by FY2009, Hunza Properties will launch another RM210 million GDV project during FY09. This project, an 80:20 JV with the land owner, sits on a 10-acre site adjacent to its existing Alila project.
The group intends to offer a mix of landed and high-rise properties with indicative pricing of RM300 to RM700 psf. This will be another of its niche, mid-high end projects where development margins average more than 30%.
Hunza Properties is scheduled to release its earnings for the financial year ended June 30, 2007 in the third week of August.
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