SINGAPORE (June 21): CIMB is starting Hatten Land with an “add” rating and a target price of 38 cents, given its 45% discount to RNAV.
CIMB likes Hatten for its exposure to the growth market of Malacca that is likely to benefit in the medium term from the mega infrastructure projects currently underway.
Hatten is a developer of integrated developments, headquartered in Malacca. The company is led by CEO Colin Tan and Deputy MD Edwin Tan, who both have more than 10 years of experience in this market.
Backed by sponsor Hatten Group, Hatten is one of the first developers in Malacca to introduce innovative property products and develop award-winning integrated projects to suit the changing lifestyle needs of consumers.
According to a Tuesday report, CIMB analyst Lock Mun Yee says the Malacca property market is the fifth-largest market in Malaysia.
“We believe there is significant growth potential in this market, which caters to not only the 0.9 million domestic population but also more than 16 million tourists that visit the city annually,” says Lock.
In addition, new infrastructure projects such as the Kuala Lumpur-Singapore High Speed Rail and completion of the Malacca Impressions and Malacca Gateway tourist attractions should draw more visitors and investors to Malacca as a holiday and investment destination.
At present, the group has four ongoing projects in its initial portfolio. They support CIMB’s projected core net profit CAGR of 28.5% for FY16-19F with a remaining potential GDV of RM1.65 billion ($5.3 billion). Of this, RM660 million is locked as yet-to-be-recognised pre-sales, which the broker expects to be largely booked in FY17F-18F.
To date, Hatten has exercised its right of first refusal (ROFR) for three land parcels within MOU period with its sponsor. There are two remaining land parcels measuring 74.86 acres.
“We estimate net debt-to-equity ratio to decline from 2.78x now to below 0.31x by FY6/19F. This puts the group in a strong position to acquire land for growth. In addition, the advantage of buying land from its sponsor would mean timely purchase and rapid asset turn, in our view, translating into higher ROEs over the medium-to-long term,” says Lock.
Key risks include unfavourable forex translation and changes in local government policies on property market that could negatively affect end-buyer demand for properties.
Shares of Hatten Land are up 1 cent at 19 cents.
