Hatten Land Limited – “Capitaland” of Malacca (10 Mar 17)

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For those who have gone to Malacca, they may have seen some of the developments by Hatten Land. Some may have gone as far to say that Hatten Land in Malacca may be considered as our “Capitaland” (to some extent) in Singapore. For those who are not familiar with Hatten Land, below is a short write-up.

 

Company description

Hatten Land is the property development arm of the conglomerate Hatten Group with business in property development, property investment, hospitality, retail and education.

Based on their circular, Hatten Land’s core business (See Table 1 below), is to sell all developed units in order to maximise economic benefit. It does not intend to own any units in its own developments. Its current development portfolio comprises three integrated mixed use development projects in Malacca, Malaysia. They are (a) Hatten City Phase 1 (incorporating Elements Mall, SilverScape Residences, Hatten Suites, and a tower block that has been taken up by DoubleTree by Hilton); (b) Hatten City Phase 2 (incorporating Imperio Mall and Imperio Residence); and (c) Harbour City (incorporating a mall, a theme park and three (3) hotels). Hatten Land has also designed and is developing a retail mall in Malacca, Malaysia called Vedro by the River.

Hatten Land is helmed by Dato Colin Tan and Dato Edwin Tan. Colin is the Executive Chairman and Managing Director and Edwin is the Executive Director and Deputy Managing Director.

Table 1: Property development process

Table 1_Hatten Land Business Procedure

Source: Company

 

Investment merits

Beneficiary of Malacca’s growth

Hatten Land is one of the prominent developers in Malacca with the bulk of its land bank located around the Straits of Malacca. Based on the company’s circular, Hatten Land is likely to benefit from the factors listed below:

a) Malacca’s residential market has been given a boost with the recognition of Malacca as a UNESCO World Heritage Site in 2008;

b) Growth in the median household income levels, coupled with the upcoming KL-Singapore High Speed Rail, (which has a stop in Ayer Keroh, Malacca), supply in the serviced apartment sector should be well absorbed in the short-to-medium term, resulting in an upward price trend;

c) Tourist receipts grew by 39.5% in 2015, the highest annual growth since 2010. With the impending RM42b Melaka Gateway project, Malacca’s popularity as a tourism destination is slated to rise. This should inevitably lead to an increased demand for hotels and potentially more hospitality developments;

d) The expansion of the Malacca International Airport coupled with regular scheduled flights to and from Guangdong, China (every five days) to be operated by China Southern Airlines may increase the number of Chinese investors and tourists to Malacca;

e) According to an article dated 20 Jun 2015 in The Star, Malacca’s state government wants to revive the 1.6km monorail spanning from Taman Rempah in Pengkalan Rama to Kampung Bunga Raya Pantai along the Malacca River. If this is successful, this should boost the tourism along the Malacca River and should benefit Hatten Land.

Robust project pipeline

Based on Table 2, Hatten Land has strong sales track record. It also has a robust project pipeline which provides visibility to their results to some extent.

Table 2: Strong sales track record and robust project pipeline

Table 2_Strong sales track record and robust project pipeline

Source: Company

Concentrated shareholding structure

After the compliance placement of 144.3m placement shares @$0.280, comprising of 95.0m new shares and 49.3m vendor shares, Hatten Holdings, together with the existing directors command 87.0% of the outstanding shares. One of my personal preferences is in companies with tightly held shares so that it is less easily targeted by short sellers.

Revenue grew at 30% CAGR since FY14; margins steady

Based on Table 3, Hatten Land’s revenue grew at a compound annual growth rate of 30% since FY14. Gross margins and net margins remain healthy at 38% and 17% respectively in FY16. Lim & Tan pointed that Hatten Land’s operating cash flow should improve in FY17 as a) there is no major project capital expenditure in 2017 and b) Both Hatten City Phase Two and Vedro by the River will be completed in 2H2017 and 1H2017 respectively.

Table 3: Financial highlights for the past 3 years

Table 3_Financial highlights for the past 3 years

Source: Company

Potential partnership with other developers

There has been an increased investment in Malaysia by China state-owned enterprises (“SOEs”). Lim & Tan rightfully pointed out that Hatten Land, being the largest property developer in Malacca, has been approached by several PRC investors and companies in the last one year. Collaborations or partnership with other developers should be beneficial to Hatten Land in the long term.

Trades at 24% to RNAV

Based on the circular, as at 30 Jun 2016, the market value of Hatten Land’s four projects namely, Hatten City Phase 1 & 2, Harbour City and Vedro by the River amounted to approximately S$506m. At the last closing price of $0.280, Hatten Land is trading at 24% to RNAV. However, it is noteworthy that Hatten has access to more than 20 land bank and development rights in high growth cities held by the Hatten Group for future development amounting to 215 acres. Land acquisition is likely to be value accretive and can further boost its RNAV.

 

Investment risks

Execution risk

Although Hatten Land has a good track record of property development, corroborated by the numerous awards won, there will always be execution risk. In addition, any delay in the completion, or / and cancellation of the SPA or MOU projects will have an adverse effect on Hatten Land.

Geographical risk

Most of Hatten Land’s projects are in Malacca. Therefore, the development, growth and prosperity of Malacca is extremely important to Hatten Land. Furthermore, it is subject to the laws and policies in Malacca and Malaysia.

Dilution from share issuance

Based on NRA’s report, they postulate that Hatten Land may issue new shares to fund its developments, as they may not be able to get enough debt funding for their upcoming projects. This may lead to dilution in the near term. However, if Hatten Land can justify the rationale of issuing shares and especially if the other party is a reputable strategic partner, it should be beneficial to Hatten Land in the medium to long term.

Limited analyst coverage

There is limited analyst coverage. NRA is the only house with a rated report on Hatten Land. Their target price is $0.440. Lim & Tan has an unrated report (i.e. no target price). It is likely that the investment community is not familiar with Hatten Land yet. However, if Hatten Land can deliver with consistent results, I would think it is a matter of time before other analysts cover Hatten Land.

 

Chart observations

Hatten Land has limited trading history post RTO / compliance placement (See Chart 1 below). However, it is noteworthy that Hatten Land seems to have rebounded from the support region of $0.265 – 0.270. There may be some minor resistance around $0.280 as Hatten Land has done a compliance placement to place out 144.3m new and vendor shares @$0.280. Chart seems to be on an uptrend as evidenced by the rising exponential moving averages.

Near term supports: $0.265 – 0.270 / 0.255 / 0.250

Near term resistances: $0.280 / 0.300 / 0.325

Chart 1: Hatten Land’s rebounded from the support region $0.265 – 0.270

Hatten Land chart as of 10 Mar 17

Source: Chartnexus 10 Mar 2017

 

Conclusion / Personal opinion

This is an introduction of Hatten Land. Whether it can become the “Capitaland” of Malacca, or even Malaysia, it remains to be seen. Nevertheless, based on their project pipeline and track record, it certainly looks interesting. As with all investments (most investments carry at least some degree of risk), readers should carefully evaluate each investment decision with care.

 

Disclaimer

Please refer to the disclaimer HERE

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