HATTEN LAND: 38-c target price (at 45% discount to RNAV)

Excerpts from CIMB report

Analyst: Lock Mun Yee

Hatten Land Ltd: Building on Melaka’s transformation Listing day 28 Feb 2017: Deputy MD Edwin Tan (left), and brother Colin Tan, who is executive chairman and MD of Hatten Land. Photo: SGXWe initiate with an Add rating and a target price of S$0.38, premised on a 45% discount to RNAV. We like Hatten for its exposure to the growth market of Melaka that is likely to benefit in the medium term from the mega infrastructure projects currently underway. Key risks include unfavourable forex translation and changes in local government policies on property market that could negatively affect end-buyer demand for properties.

Company background

Hatten Land (Hatten) is a developer of integrated developments, headquartered in Melaka. The company is led by CEO Mr Colin Tan and Deputy MD Mr 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 Melaka to introduce innovative property products and develop award-winning integrated projects to suit the changing lifestyle needs of consumers.

Large unrecognised sales underpin medium-term earnings outlook

The group has four ongoing projects in its initial portfolio and recently acquired three land parcels. Underpinning our projected core net profit (before restructuring expenses) CAGR of 28.5% for FY16-19F are these ongoing development projects (excluding landbank) with a remaining potential GDV of c.RM1.65bn. Of this, RM660m is locked as yet-to-be-recognised presales, which we expect to be largely booked in FY17F-18F.

New infrastructure development to catalyse Melaka market

The Melaka 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 0.9m domestic population but also more than 16m tourists that visit the city annually. In addition, new
infrastructure projects such as the Kuala Lumpur-Singapore High Speed Rail and completion of the Melaka Impressions and Melaka Gateway tourist attractions are likely to draw more visitors and investors to Melaka as a holiday and investment destination.

Additional sponsor landbank to provide long-term income visibility

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.

Full 27-page report here.