Hafary Holdings - RHB Invest 2016-07-14: Paving The Way, Tile By Tile

HAFARY HOLDINGS LIMITED 5VS.SI

Hafary Holdings - Paving The Way, Tile By Tile

We believe that one of the key drivers to its earnings going forward will be Singapore’s public housing environment from new BTO flats and HDB’s upgrading plan. This is given the high correlation between its revenue and the sale of new residential units.
Management has also been keen to reward shareholders, as shown by its track record in dividends, especially in the past few years.

With bright prospects paving its way, we maintain a BUY recommendation with a new DCF-derived SGD0.25 TP (25% upside) implying a 10.2x FY17F P/E.

With an estimated of 15,000 new Build-To-Order (BTO) flats to be offered this year, this will help improve both project and retail revenue concurrently.
In 2016, the Building and Construction Authority (BCA) of Singapore estimated construction demand of between SGD27bn and SGD34bn.
Furthermore, with the constant upgrading initiated by the Housing Development Board (HDB), Hafary could potentially increase its earnings on a recurring basis.
Beyond the housing development in Singapore, the expansion of the healthcare sector – such as the construction of new hospitals such as the Sengkang General Hospital, Yishun Community Hospital – and redevelopment of certain existing hospitals, could potentially be another source of revenue for Hafary.

Going forward, we understand that the management will likely take a more proactive role in reaching out to the shareholders. For instance, a fixed minimum dividend payout ratio policy may be implemented in the near future.

Vietnam has a 6.7% FY16F GDP growth. With the restructuring of its revenue base, its business model now comprises 60% retail and 40% project-based. The former fetches higher margins contributing to an increased bottom-line growth. Two new project showrooms have been launched in Phu My Hung at Ho Chin Minh City and Hanoi, which could potentially secure its foothold in Vietnam, thereby increasing its market share.

With a new factory being built in Malaysia, it is in a better position to negotiate with developers, as the factory can be seen as a secure source in the provision of products. The factory provides greater flexibility in the case of any changes ranging from measurement specification or the material aspect.

Rental income roughly accounts for 16% of PBT, providing some stability to earnings.
Key risks include a slowdown in BTO flat construction or economic recession.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-07-14

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.25 Down 0.35