Excerpts from analyst's report
OSK-DMG starts coverage of Hafary Holdings with 35-c target
Analysts: Sarah Wong & Terence Wong, CFA
♦ Market leader in tile supply in Singapore, with 34 years of track record. Hafary supplies a wide array of tile and flooring products for home renovation, private property development and public sector refurbishment needs. Founded in 1980, Hafary has demonstrated a strong track record in identifying interior decorative trends and managing working capital and inventory. Its tile supply business typically yields 8-12% net margins and we forecast stable revenue and earnings trends from FY15-17F.
OSK-DMG starts coverage of Hafary Holdings with 35-c target
Analysts: Sarah Wong & Terence Wong, CFA
|
We initiate coverage on Hafary Holdings “Hafary” with a BUY rating and a SOP-derived TP of SGD0.35, representing an upside of 67%. Hafary is a market leader in tile supply in Singapore, offering a wide range of tile and related products for home renovation, private property development and public sector projects. Hafary also owns a portfolio of six property assets with a potential valuation surplus of c.SGD58.1m. |
♦ Market leader in tile supply in Singapore, with 34 years of track record. Hafary supplies a wide array of tile and flooring products for home renovation, private property development and public sector refurbishment needs. Founded in 1980, Hafary has demonstrated a strong track record in identifying interior decorative trends and managing working capital and inventory. Its tile supply business typically yields 8-12% net margins and we forecast stable revenue and earnings trends from FY15-17F.
Hafary CFO Jackson Tay shows off some expensive tiles in Hafary's showroom. NextInsight file photo.♦ An undervalued portfolio of six property assets. Hafary has accumulated five properties in Singapore and one in China over the past four years, mainly for warehousing purposes.The portfolio of properties has a book value of SGD61.3m, with a valuation surplus of another SGD58.1m. Most of the valuation surplus would pertain to two properties: 105 Eunos Ave 3 and 18 Sungei Kadut Street 2 (which will undergo redevelopment).
♦ Initiate BUY with SOP-derived TP of SGD0.35. We value Hafary using SOP, valuing its tile supply business and property development assets separately. We peg its tile supply business to 10x FY15F P/E, deriving a FV of SGD71.6m. We then add on the book value and valuation surplus of the properties, minus the debt pertaining to property. We derive a FV of SGD152.2m or TP of SGD0.35 per share on Hafary.
♦ Risks include susceptibility to a slowdown in construction and renovation activities in the local market, credit risks and default in payments by customers, as well as inventory obsolescence risks.
Net earnings may be crimped by a higher depreciation on the properties. On the other hand, PATMI may appear to be declining even though gross profits are likely to remain stable at c.38.4% gross margins.
This is due to a higher depreciation cost, which is non-cash in nature, on its expanding portfolio of properties.
We forecast gross profits to be c.SGD36m per annum over FY15-17F.
Our PATMI forecasts are c. SGD7.2m/6.2m/5.2m for FY15/16/17F, on higher depreciation numbers.
Net earnings may be crimped by a higher depreciation on the properties. On the other hand, PATMI may appear to be declining even though gross profits are likely to remain stable at c.38.4% gross margins.
This is due to a higher depreciation cost, which is non-cash in nature, on its expanding portfolio of properties.
We forecast gross profits to be c.SGD36m per annum over FY15-17F.
Our PATMI forecasts are c. SGD7.2m/6.2m/5.2m for FY15/16/17F, on higher depreciation numbers.
Full report here.
Recent story: HAFARY: "It stood out due to its considerable dividends"
Comments
the second set of tables (PATMI & depreciation) are the ones that are most relevant, and they clearly point to a declining Profit After Tax. However, how did the analyst come up with a rising depreciation trend? Based on assets yet to be purchased but presumed to be ?