HATTEN LAND: Stock 29 c, target price 43 c

Excerpts from UOB Kay Hian report

HATTEN LAND (HATT SP) Harbouring Blueprints For Malacca’s Skyline Listing day 28 Feb 2017: Deputy MD Edwin Tan (left), and brother Colin Tan, who is executive chairman and MD of Hatten Land. Photo: SGX Hatten Land is one of Malacca’s leading property developers, specialising in integrated residential, hotel and commercial developments over the last 10 years. Dataran Pahlawan Malacca Megamall, Hatten Square Suites & Shoppes as well as Terminal Pahlawan are among its completed projects in Malacca. Currently, it is developing three mixed projects and one commercial property (7.8m sf by GFA). Initiate coverage with a BUY and SOTP target price of S$0.43.

♦ Clear earnings visibility. Hatten Land’s current development portfolio comprises three integrated mixed-use projects (Hatten City Phase 1 & Phase 2 and Harbour City) and a commercial project (Vedro by the River). With the exception of Harbour City (9% completion), the other projects are already in advanced stages of completionand sales.

♦ Having your cake and eating it too. Hatten Land’s right of first refusal (ROFR) agreement with its sponsor grants it access to 22 land plots (9.2m sf). The company has entered into a non-binding MOU to acquire five of these land plots at value accretive prices (two of which are currently under a sale-and-purchase agreement).

This would allow Hatten Land to remain asset-light, and push landbanking risk to its parent company Hatten Group. This also affords Hatten Land the luxury of choice in selectively developing projects based on its business strategy and the competitive environment.

♦ Established track record in Malacca. Hatten Land has accumulated over 10 years of experience, stemming from its roots as the property development arm of parent company Hatten Group. Its first development project - Dataran Pahlawan Malacca Megamall - is now one of Malacca’s largest shopping malls.

♦ Beneficiary of uplift in domestic hospitality. Hatten Land looks poised to tap into Malacca’s burgeoning tourism sector through investor demand for its serviced residences. 

♦ Our target price is S$0.43, premised on SOTP valuation. Our valuation incorporates the revalued net asset valuation of existing development projects and net present value of development land (as if complete) under a non-binding MOU with Hatten Group. A blue sky scenario could see the target price expanding to S$0.53 if the ROFR discount narrows to 60% upon more details on the remaining ROFR exercise price and development plans.

♦ Key risks are: a) no assurance that the ROFR/call option for land acquisition will be exercised; b) bumiputera lot quota policy; c) rental obligations for units under sale and leaseback arrangements; d) sale of shares by vendors; e) potential currency translation risk; f) development risks; g) low trading liquidity; and h) local government policies. 

Full report here.