Good earnings visibility for Ho Hup for next 2 to 3 years

by **Cals** Mon 24 Aug 2015, 23:17

Good earnings visibility for Ho Hup for next 2 to 3 years

Ho Hup Construction Co Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)
(Aug 21, RM0.88)
Maintain buy with a lower target price (TP) of RM1.77: Ho Hup Construction’s first-half ended June 30, 2015 (1HFY15) revenue of RM149.6 million declined 12.5% year-on-year (y-o-y), mainly attributable to lower contribution from its construction division (-24% y-o-y) — Kem Askar Johor and Karbala Project in Iraq reached completion stages during second quarter of FY15 (2QFY15). However, net earnings of RM34.3 million (+20.1% y-o-y) were largely in line with our and consensus expectations, making up 48.9%/48% of our/consensus full-year forecast.
The improved earnings have been mainly lifted by greater contribution from its Bukit Jalil’s Parcel A (Aurora Place) project and phase 1 of its joint-venture (JV) project with Pioneer Haven Sdn Bhd, and partly because its construction segment only contributes marginally to its bottom line.
Performance remains intact. Phase 2B (i) under the JV project (comprises two blocks of serviced apartments) launched in June has been fully booked while phase 2B (ii) (another two blocks of serviced apartments) launched in July (with a previously targeted launch in 4QFY15) has also received good response from buyers. These two phases, once fully sold, are estimated to add about RM169 million on top of Ho Hup’s total unbilled sales of RM546.5 million as of May, providing good earnings visibility for the next two to three years.
We make no changes to our earnings forecasts for now. Key risks include weaker-than-expected take-up rates for its property development projects, and failure to replenish its order book.
We maintain “buy” with a revised sum-of-parts (SoP)-derived TP of RM1.77 (fully diluted TP: RM1.48). We trimmed our TP to RM1.77 (from RM1.96, 92.4%) based on SoP valuation, after applying a higher discount rate of 35% (from 25%) to its property development’s revised net asset value to reflect a higher market risk premium on the local property sector. — RHB Research Institute, Aug 21
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This article first appeared in digitaledge Daily, on August 24, 2015.