MONEY TALK BUY HATTEN LAND (HATT SP)

Transcription

1 MONEY TALK HATTEN LAND (HATT SP) Harbouring Blueprints For Malacca s Skyline 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 completion and 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 valueaccretive 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. KEY FINANCIALS Year to 30 Jun (RMm) F 2018F 2019F Net turnover EBITDA Operating profit (4.3) Net profit (rep./act.) (4.3) Net profit (adj.) EPS (sen) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x) , Bloomberg, UOB Kay Hian BUY (Initiate Coverage) Share Price S$0.285 Target Price S$0.43 Upside +50.9% COMPANY DESCRIPTION Hatten Land operates as a property developer in Malaysia. The company focuses on residential, hotel and commercial developments. GICS sector Real Estate Bloomberg ticker: HATT SP Shares issued (m): 1,375.1 Market cap (S$ m): Market cap (US$ m): mth avg t over (US$m): 0.7 PRICE CHART (lcy) HATTEN LAND LTD Hatten Land Ltd/FSSTI Index Volume (m) Source: Bloomberg ANALYSTS Singapore Research Team research@uobkayhian.com (%) Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 1

2 Investment Highlights Distinct earnings visibility on healthy pre-sales. Hatten Land s current development portfolio (7.8m sf by GFA) comprises three integrated mixed-use development projects, (Hatten City Phase 1 & Phase 2 and Harbour City) and a commercial project (Vedro by the River). These projects, with the exception of Harbour City, are in advanced stages of completion and sales. Hatten City Phase 1 (comprising Elements Mall, SilverScape Residences and Hatten Suites) was fully completed in Mar 16 (70.7% sold), with Hatten City Phase 2 now 66% complete (53.5% sold) while Vedro by the River 65% complete (65% sold). Harbour City (9% completion) remains the sole project not in advanced stages of completion although it is now about 40% sold. Having your cake and eating it too. On 10 Feb 17, Hatten Land entered into a nonbinding MOU covering five land plots from parent company (potential GFA of 9.2m sf) at value-accretive prices (RM30-80psf). The company subsequently entered into a conditional sale-and-purchase (SPA) agreement to acquire two of the five MOU land plots (potential GFA of nearly 5m sf). We have factored in the acquisitions of these five land plots on a complete basis in our SOTP valuation (see below). Healthy land acquisition pipeline. Hatten Land also has the ROFR over 17 land plots which are not covered under the MOU or SPA agreements. We have not factored in these land plots in our valuation due to lower visibility on the injection timeline. However, these could contribute to valuation expansion should these land assets be injected at similarly accretive prices as the above agreements. Established track record in Malacca. From its first development project (Dataran Pahlawan Malacca Megamall, now a leading mall in Malacca), Hatten Land has accumulated over 10 years of development activity, stemming from its roots as the property development arm of parent company Hatten Group. 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 (Hatten Suites, SilverScape Residences, Imperio Residence and Harbour City Suites). This segment has witnessed growing visitor arrivals with tourism receipts reaching a new high in We also reckon that Malacca s status as a UNESCO site (since 2008) will continue to be beneficial to the domestic residential market. FIGURE 1: HEALTHY SALES RECORD No. of Units GFA (sf) Net Saleable Area (sf) Elements Mall 1,530 1,530, , Hatten City Phase 1 SilverScape Residences , , Hatten Suites , , Hatten City Phase 2 Imperio Mall , , Imperio Residence , , Vedro by the River Vedro by the River ,547 95, Harbour City Mall ,766,847 1,033, Harbour City Harbour City Suites , , Harbour City Resort , , Harbour City Luxury Hotel , ,055 n.a. Total 9,054 7,845,976 4,342,539, UOB Kay Hian *As at 30 Jun 16 Sold (%) * 2

3 FIGURE 2: MALAYSIAN DEVELOPERS UNDER OUR COVERAGE Price Target Upside/ Market Curr Fwd Curr Fwd Book Price/ RNAV Fwd Discount Company Ticker Rec 13 Mar 17 Price (Downside) Cap. PE PE Yield Yield NAV ps Book ps ROE Gearing to RNAV (RM) (RM) to TP (%) (RMm) (x) (x) (%) (%) (RM) (x) (RM) (%) (%) (%) EcoWorld ECW MK HOLD (3.4) (43) Malaysian Resources MRC MK HOLD (5.9) (20) Mah Sing MSGB MK HOLD (52) SP Setia SPSB MK HOLD (9.1) 2, (34) Sunway Bhd SWB MK BUY , (30) UEM Sunrise UEMS MK SELL (22.8) 1, (43) Source: Bloomberg, UOB Kay Hian FIGURE 3: SINGAPORE DEVELOPERS UNDER OUR COVERAGE Price Target Upside/ Market Curr Fwd Curr Fwd Book Price/ RNAV Fwd Discount Company Ticker Rec 13 Mar 17 Price (Downside) Cap. PE PE Yield Yield NAV ps Book ps ROE Gearing to RNAV (S$) (S$) to TP (%) (S$m) (x) (x) (%) (%) (S$) (x) (S$) (%) (%) (%) CapitaLand CAPL SP BUY , (27) City Devt CIT SP BUY , (19) Ho Bee HOBEE SP BUY , (38) Wing Tai WINGT SP BUY , (44) Source: Bloomberg, UOB Kay Hian 3

4 Valuation Our target price is S$0.43, based on SOTP. There are two key components to our SOTP analysis: a) the RNAV from existing development projects with clear earnings visibility, and b) the potential value accretion from its pipeline of land acquisitions (covered under MOU/SPA agreements) from parent company Hatten Group. We have not factored in further accretion from Hatten Group s remaining ROFR land pipeline, as they are not covered under the MOU/SPA agreements. This would imply further valuation expansion once Hatten Land sheds more light on injection details for these land plots. We impute a 30% discount to our RNAV for existing projects and a significantly higher discount of 80% for its MOU/SPA land. We have valued the MOU/SPA land on an as if complete basis, ie fully completed and sold, before discounting the attributable profits to the present. Bearing in mind that the pipeline land plots under the MOU/SPA agreements do not yet belong to Hatten Land, we see it fit to impute a markedly higher discount rate of 80%, given the substantial risk profile associated with the long gestation period (acquisition and completion of sales and development). We also note that one of the MOU land plots is still under land reclamation works. FIGURE 4: SOTP VALUATION Asset Tenure Sector GFA Stake Overall ASP No. of % RNAV (sf) (%) (RMpsf) units sold* (RMm) Development properties Elements Mall Leasehold (99 years) Retail 1,530, ,000 1, SilverScape Residences Leasehold (99 years) Serviced Residence 820, Hatten Suites Leasehold (99 years) Hospitality 240, , (3) Imperio Mall Leasehold (99 years) Retail 622, , Serviced Imperio Residence Leasehold (99 years) Residence 797, Vedro by the River Freehold Retail 213, , Harbour City Mall Leasehold (99 years) Retail 1,766, ,300 1, Harbour City Suites Leasehold (99 years) Hospitality 661, , Harbour City Resort Leasehold (99 years) Hospitality 586, , Harbour City Luxury Hotel Leasehold (99 years) Hospitality 322, , (9) NPV of Development profits (1) 1,747 Net Book Value (2) 186 RNAV (1+2) 1,934 RNAV (1+2) (S$m) 636 Diluted shares (m) 1,359 Fully diluted RNAV per share (RM) 1.42 Conversion rate (S$/RM) 3.04 Fully diluted RNAV per share (S$) 0.47 Peers trading discount to RNAV -30% Fair Value (S$) 0.33 NPV of ROFR land under MOU (RM) 2,044 Discount -80% ROFR land value (RMm) 409 SOTP value (S$m) 580 SOTP (S$) 0.43 *As of 30 Jun 16, UOB Kay Hian 4

5 FIGURE 5: SENSITIVITY ANALYSIS RNAV /ROFR Discount -60% -65% -70% -75% -80% -85% -90% -95% -100% -25% % % Source: UOB Kay Hian Sensitivity analysis. The table above highlights the sensitivity of our SOTP valuation to various discount rates for existing projects and the ROFR land. Our base case is 30% for existing projects and 80% for the ROFR land, which implies a fair value of S$0.43/share. Our sensitivity analysis indicates a worst-case scenario valuation of S$0.33/share should there be zero value attributable to the ROFR land, ie 100% ROFR discount, 30% discount to RNAV. However, we think this is rather unlikely as major shareholders have retained a 86% stake (according to Bloomberg) in Hatten Land. The company has also announced a MOU as well as SPA over five land plots held by parent company Hatten Group. Our fair value will expand to S$0.53/share once we lower the ROFR land value discount to 60% (RNAV discount still kept at 30%). 5

6 Company Background BUSINESS OVERVIEW Hatten Land is one of Malaysia s leading property developers, specialising in integrated residential, hotel and commercial developments, and is headquartered in Malacca, Malaysia. Hatten Land s development projects cover 7.8m sf by GFA, and consist of Hatten City Phase 1 (SilverScape Residences, Elements Mall, Hatten Suites), Hatten City Phase 2 (Imperio Residence, Imperio Mall), Harbour City (mixed development with retail/hospitality component) and Vedro by the River. FIGURE 6: DEVELOPMENT PROJECTS FIGURE 7: DEVELOPMENT PROJECTS/ROFR PIPELINE (THEA WELLNESS/CYBERJAYA) 6

7 HISTORY Hatten Land was the property development arm of parent company Hatten Group, which commenced its first property development project in 2005, a then-abandoned mall project (held under holding company Lianbang), known today as Malacca s largest shopping mall, Dataran Pahlawan Melaka Megamall. Successful completion of this project paved the way for further developments in Malacca, as the group ventured into the hospitality and retail segments, in addition to expanding its real estate investment portfolio. FIGURE 8: TRACK RECORD AS DEVELOPMENT ARM OF SPONSOR HATTEN GROUP 7

8 GROUP STRUCTURE FIGURE 9: MANAGEMENT REPORTING STRUCTURE FIGURE 10: COMPANY STRUCTURE 8

9 FIGURE 11: HATTEN CITY PHASE 1 FIGURE 12: PROJECT DETAILS The mixed development, Hatten City Phase I, integrates four distinct projects, namely Elements Mall, SilverScape Residences, Hatten Suites and a tower block, which will be managed by Hilton Worldwide as part of its DoubleTree by Hilton brand. Location: Bandar Hilir, Malacca, Malaysia, fronting the Malacca Straits Land Size: Approximately six acres Market Value : RM628.0m (as at 30 Jun 16) Developer: Fuyuu Resources Sdn. Bhd. Status as of 30 Jun 16: Completed No. of Units GFA Net Saleable Area Percentage Sold* Completion Completion (sf) (sf) (%) (%) Date Elements Mall 1,530 1,530, , Nov 15 SilverScape Residences , , Mar 16 Hatten Suites , , Nov 15 DoubleTree by Hilton ,521 N.A. N.A. 100 Mar 16 Total 3,141 2,874,563 1,443, * As at 30 Jun 16 FIGURE 13: HATTEN CITY PHASE 2 FIGURE 14: PROJECT DETAILS Hatten City Phase 2 is a mixed development which comprises Imperio Mall and Imperio Residence. It utilises an iconic cascading steps design which functions as an outdoor jogging route with views of the coast and surrounding city. Imperio Residence will also feature 10 Cabana Villa units each of which will measure approximately 3,930 square feet across three (3) storeys along with two (2) private carparks, its own lift and pool. Imperio Mall and Imperio Residence will be connected to the rest of Hatten City via an air-conditioned link bridge. Location : Jalan Syed Abdul Aziz, Bandar Hilir, Malacca, Malaysia, fronting the Malacca Straits Land Size : Approximately four acres Market Value : RM363. m (as at 30 Jun 16) Developer : Fuyuu Ventures Sdn. Bhd. Status as of 30 Jun 16: Under Development No. of Units GFA Net Saleable Area Percentage Sold* Completion Completion (sf) (sf) (%) (%) Date Imperio Mall , , H17 Imperio Residence , , H17 Total 1,736 1,419, ,

10 FIGURE 15: HARBOUR CITY FIGURE 16: PROJECT DETAILS Harbour City is a mixed development which will consist of Harbour City Mall, a water theme park and three hotel blocks. In incorporating elements of retail, hotels and the theme park, Harbour City aims to change Malacca s tourism and entertainment landscape. Location : Pulau Melaka fronting the Malacca Straits Land Size : Approximately six acres Market Value : RM849.0m (as at 30 Jun 16) Developer : Gold Mart Sdn. Bhd. Status as of 30 Jun 16: Under Development No. of Units GFA Net Saleable Area Percentage Sold* Completion Completion (sf) (sf) (%) (%) Date Harbour City Mall 1,831 1,766,847 1,033, H19 Harbour City Suites , , H19 Harbour City Resort , , H20 Harbour City Luxury Hotel , ,055 N.A. 9 1H20 Total 3,441 3,338,075 1,972, * As at 30 Jun 16 FIGURE 17: VEDRO BY THE RIVER FIGURE 18: PROJECT DETAILS Vedro by the River is a retail mall which aims to features an eclectic mix of tenants ranging from fashion house to retailers of novelty gadgets and chic accessories. Location : Kee Ann Road, along Malacca River Land Size : Approximately two acres Market Value : RM65.0m (as at 30 Jun 16) Developer : Fuyuu Group Sdn. Bhd. Status as of 30 Jun 16: Under Development Total Units GFA Net Saleable Area Percentage Sold* Completion Completion (st) (sf) (%) (%) Date Vedro by the River ,547 95, H17 * As at 30 Jun 16 10

11 FIGURE 19: MANAGEMENT FIGURE 20: SELECTED DIRECTORS/PERSONNEL Name Position Experience Dato Colin Tan Executive Chairman and Managing Director * Co-founder of parent company Hatten Group. Executive Chairman and managing director since the incorporation of Hatten Group in His responsibilities include sales and marketing, business growth and development, asset and land acquisitions, investment and growth strategies, governmental regulation and compliance, construction management, market research and analysis and brand management. Dato Colin graduated from the University of Dublin with a Bachelor of Science (Finance) in Dato Edwin Tan Lee Sok Khian John Executive Director and Deputy Managing Director Executive Director & Head of Corporate Finance * Co-founder of parent company Hatten Group. Executive director and deputy managing director since the incorporation of Hatten Group in His responsibilities include operations, human resources, development management hospitality strategy, planning and design, occupancy growth strategies, tenancy management and tenant relations, leasing and management strategy and facilities management. Dato Edwin graduated from the University of Dublin with a Bachelor of Science (Finance) in * Before joining Hatten Group in May 16, Mr Lee was CFO and company secretary of Koh Brothers Group in Previous appointments include being the managing director and subsequently the advisor (group finance) of Leeden Ltd (now known as Leeden National Oxygen), an industrial hardware distributor listed on the SGX-ST Mainboard from Jan 97 to Mar 05. * Fellow of the Institute of Singapore Chartered Accountants. Chua Thiam Siew, Johnson Group Financial Controller * Before joining Hatten Group in May 16, Mr Chua was Financial Controller of Koh Brothers Eco Engineering and in and finance manager of Koh Brothers Building & Civil Engineering. From , he was at The Ascott Ltd (part of the CapitaLand Group), where he was regional general manager of North China and East China. * Master of Business Administration from Southern Cross University and a Master of Accounting from Curtin University of Technology (Australia). He is an Associate Member of CPA Australia. Chong Foh Siong Head of Development Management * Prior to joining the Hatten Group in Apr 07, Mr Chong worked at two architectural firms, Akitek AAP from ( ) and Akitek KHP ( ) where he was responsible for coordinating projects, submissions of plans to various authorities for approval and ensuring that all works met regulatory guidelines * Graduated from the Federal Institute of Technology (Institut Teknologi Federal) with a Technical Diploma in Architecture in Tan Kay Yan, Mark Head of Business Development * Prior to joining the Hatten Group in May 15, Mark was with UE E&C Ltd ( ) where he held the position of general manager, strategy and risk. Before his transfer to UE E&C Ltd, Mark served in United Engineers Group ( ) in the area of corporate planning and coordination where he tracked and rationalised part of the regional portfolio of United Engineers Group * Obtained an MBA from the Helsinki School of Economics in Also holds a Bachelor Degree of Engineering (Electrical), Hons, from NUS 11

12 Financials We estimate Hatten Land s net gearing to decline from 278% to % post listing. Hatten Land s historical gearing is ostensibly high at 2.78x, mainly due to low book value before listing. Net gearing is expected to fall after listing and is projected to decline further on progressive recognition of unbilled sales. The estimated locked-in sales of RM1.1b would provide earnings visibility to FY19. Forward ROE is projected at 20%, significantly higher than Singapore and Malaysia developers FY17 ROE range of 2-10%, due to Hatten s asset-light model. We also project a net loss of RM4m in FY17 due to one-off listing expenses. Stripping this out, core net profit is estimated at RM56m. We expect core net profit to grow at a CAGR of about 9% over the next two years to RM67m in FY19. FIGURE 21: NET GEARING 300% (Net Gearing) 263% 278% 250% 200% 150% 146% 177% 199% 100% 50% 0% FY15 FY16 FY17F FY18F FY19F Source: UOB Kay Hian FIGURE 22: NET PROFIT RM 56m in core net profit (RM m) FY15 FY16 FY17F FY18F FY19F Source: UOB Kay Hian FIGURE 23: RETURN ON EQUITY Due to one-off reverse acquisition and RTO expenses Source: UOB Kay Hian 12

13 Industry MALAYSIA REVIEW AND OUTLOOK The Malaysian government is targeting GDP growth of 5-6% p.a. from 2016 to Last November, Malaysia s Prime Minister Najib Razak upgraded his government s expectations for GDP expansion in 2017 to 4-5% (previously %). The Malaysian economy grew by 5% in 2015, lower than the 6% in Throughout , Malaysia s GDP consistently grew at least 5%, except in 2013 due to a decline in activities in all but the agricultural sector private domestic demand grew 6.1% yoy (2014: 7.9%) on slower growth in investments and private consumption, which faltered after Apr 15 s GST, in the wake of shifting household consumption patterns also saw net exports slip 3.7% yoy, after the relatively blistering double-digit growth of 12.8% yoy clocked in Demand from the public sector saw higher growth of 2.1% in 2015, from 0.4% in Public consumption continued to underpin public sector demand as government spending on fixed assets fell. In 2015, the construction sector propelled supply growth (+8.2% yoy) for the fourth consecutive year, followed in succession by the services and manufacturing sectors which registered respective growth of 5.1% yoy and 4.9% yoy. Nevertheless, at 54% of GDP, the services sector retained its lion share (at 54%) of GDP contribution (2010: 51%). This was followed by the manufacturing sector which accounted for 23% of the GDP in the last five years. FIGURE 24: MALAYSIA GDP GROWTH AND UNEMPLOYMENT Source: Department of Statistics Malaysia, Bank Negara Malaysia FIGURE 25: MALAYSIA GDP BREAKDOWN Source: Department of Statistics Malaysia, Bank Negara Malaysia 13

14 MALACCA REVIEW AND OUTLOOK Malacca s GDP growth for 2015 is estimated at 4.5% (2014: 7.6%). The services sector comprised 46% of Malacca s GDP in 2015 (2010: 44%), underpinned by wholesale, retail trade, accommodation and restaurants, and utilities, transport, storage and communication segments. In contrast, the manufacturing sector accounted for 40% of the state s GDP in 2015, compared with the 42% in FIGURE 26: GDP GROWTH IN MALAYSIA AND MALACCA Source: Department of Statistics Malaysia, Bank Negara Malaysia FIGURE 27: MALAYSIA AND MALACCA UNEMPLOYMENT RATE Source: Department of Statistics Malaysia, Bank Negara Malaysia FIGURE 28: MALACCA S ECONOMIC INDICATORS Source: Department of Statistics Malaysia, Bank Negara Malaysia, International Monetary Fund, Melaka Tourism Promotion Division 14

15 KEY GROWTH TURBINES IN MALACCA Kuala Lumpur-Singapore high-speed rail (which has a stop at Ayer Keroh, Malacca). The 350 km high-speed rail will cost RM43b and is targeted to complete in This will allow visitors to travel from Singapore to Malacca in 50 minutes and from Malacca to Kuala Lumpur in 40 minutes. FIGURE 29: POTENTIAL BENEFICIARY OF PROPOSED HIGH-SPEED RAIL STATION Expansion of Malacca International Airport, coupled with weekly scheduled flights to and from Guangdong, China, to be operated by China Southern Airlines, may increase the number of Chinese investors and tourists in Malacca. FIGURE 30: POTENTIAL LANDBANK SITUATED AROUND MELAKA GATEWAY 15

16 Planned RM40b Malacca Gateway in the Straits of Melaka could spur tourism and investment, in particular the construction of the deep sea port. This could lead to an increase in demand for developed properties. a) The project is expected to open in 2018 and fully completed by Melaka Gateway is projected to generate additional 2.5m tourists over the next 12 years. b) Malacca International Cruise Terminal, part of the Melaka Gateway project, is expected to reach completion in Some 250 cruise ships are targeted to dock at the terminal p.a. by 2020 and this will have a strong economic impact. c) The deep sea port is estimated to cost RM8b and be completed by RESIDENTIAL Malacca s residential property market. According to industry consultant Nawawi Tie Leung Property, Malacca s residential market saw completions averaging over 2,000 units per year, representing a CAGR of 1.7% in supply in This placed 1Q16 total stock at 168,021 units in Malacca. Of this, condominium/apartments and serviced apartments made up merely 6%, equivalent to 10,405 units, according to NAPIC data. The bulk of supply (68%) could be attributed to landed developments (terrace, semidetached, clusters and town houses). Malaysian owner-occupiers tend to prefer landed homes, according to the industry consultant. This is especially so for a state like Malacca, where demand is underpinned by domestic owner-occupiers who are partial towards landed properties. While Hatten Group is a leading developer of serviced apartments in the Malacca city centre, other key players include Faithview Group and Yong Tai Bhd. According to Nawawi Tie Leung, investor appetite (foreign and local) in the property market has grown post the recognition of Malacca City as a UNESCO World Heritage Site in They opine this is evident from the sales performances of recent launches which have reportedly attracted buyers from Singapore, China and Indonesia. However, they also note that local buyers continue to dominate the market. We understand from Hatten Land s management that Singaporeans comprise less than 20% of buyers in their projects. FIGURE 31: SUPPLY OF RESIDENTIAL UNITS FIGURE 32: 1Q16 SUPPLY BREAKDOWN Source: National Property Information Centre Source: National Property Information Centre 16

17 FIGURE 33: INCOMING SUPPLY OF SERVICED APARTMENTS Source: National Property Information Centre HOSPITALITY Malacca s tourism sector welcomed 15.7m tourists in 2015, up 4.7% yoy. Tourist receipts also increased 39.5% yoy to RM16.7m, the highest annual growth rate since International tourists accounted for 28.4% of Malacca s 15.7m arrivals (2014: 27.8%). According to the industry consultant, Malacca remained increasingly popular among foreign tourists, attracting 17% of the foreign tourists in Malaysia in 2015, compared with 15% in Malacca is a prominent destination for Chinese nationals in Malaysia, capturing 879,050 of the 1.67m Chinese tourists who visited Malaysia in The state will continue to attract a significant number of tourists from China with various Chinesethemed leisure developments such as Cheng Ho City and Impression Malacca. As of Sep 16, Malacca International Airport had a new direct route connecting the state to Guangdong, China, via chartered flights operated by China Southern Airlines. In light of the above and upcoming major attractions and promotions, the state government is confident of attracting 8m Chinese tourists in five years time. This will have a positive impact on the retail and hotel sectors. FIGURE 34: MALAYSIA AND MALACCA INTERNATIONAL TOURIST VISITORS Source: Malacca Tourism Promotion Division 17

18 FIGURE 35: MALAYSIA AND MALACCA INTERNATIONAL TOURIST VISITORS Source: Malacca Tourism Promotion Division FIGURE 36: MALACCA S TOP 5 INBOUND TOURIST ARRIVALS Source: Malacca Tourism Promotion Division FIGURE 37: MALACCA HOTEL PERFORMANCE Source: NTL Research & Consulting, Melaka Tourism Promotion Division FIGURE 38: SELECTED INCOMING HOTELS IN MELAKA Source: NTL Research & Consulting, Melaka Tourism Promotion Division 18

19 RETAIL Malaysia s retail sales increased 1.4% yoy in 2015, the lowest annual growth since According to Nawawi Tie Leung, consumer sentiment was affected by the gloomy economic outlook, a weakening ringgit, job market volatility and the implementation of GST in Apr 15. Accordingly, the Consumer Sentiment Index (CSI) hit a record-low of 63.8 in 4Q15. The industry consultant also found the CSI hovering below its threshold confidence level of 100 for seven consecutive quarters. FIGURE 39: CONSUMER SENTIMENT INDEX FIGURE 40: MALAYSIA ANNUAL RETAIL SALES Source: Malaysian Institute of Economic Research Source: Retail Group Malaysia FIGURE 41: SUPPLY AND OCCUPANCY OF RETAIL SPACE IN MELACCA Source: National Property Information Centre FIGURE 42: RETAIL LOT MONTHLY RENTALS Source: National Property Information Centre, NTL Research 19

20 Risk Factors No assurance that ROFR/call option for land acquisitions will be exercised. While Hatten Land has the right to exercise the call options to acquire over 17 land parcels (excluding the SPA/MOU land parcels), there is no guarantee it will do so. As Hatten does not presently have existing landbank, this might adversely impact its forward earnings upon complete recognition of existing development projects. Bumiputera quota policy. The policy allows bumiputeras (local Malays) to own properties at discounted prices. As such, discounts ranging 5-15% will have to be offered on such units (both residential and commercial) set aside for the bumiputeras. The allocation quantum is set to vary from time to time. Also, bumiputera lots may be harder to sell as the market is strictly confined to bumiputeras (depending on the location of the properties). The inability to sell such bumiputera lots may adversely impact Hatten Land s business, financial performance and operations. Development risks. New project developments are subject to, among others,: a) market or site deterioration after acquisitions; b) potential discovery of previously undetected defects or problems at a site; and c) the possibility of construction delays or cost overruns due to various reasons such as delayed regulatory approvals, adverse weather, labour or material shortages, work stoppages, delay from land and site clearances and the unavailability of construction and/or long term financing. Potential currency translation risk. Hatten Land s reporting currency could be in Singapore dollar even though the group s functional earnings are denominated in ringgit. As such, depreciation of the ringgit or strengthening of the Singapore dollar will affect the company s reported earnings (assuming they are in Singapore dollars). Rental obligations for units under sale-and-leaseback arrangements. Hatten Land enters into agreements to sub-let (to Hatten Group or third parties) hospitality and retail units to fulfil rental yield agreements signed by the company and purchasers. This opens up the possibility of default risk by the lessees (either the master lessee in relation to hospitality units or individual lessees in relation to retail units). Hatten Land will nevertheless have to continue fulfilling their obligations to the purchasers under the relevant tenancy agreements in such a scenario, which may result in cash flow deficit under the sale and leaseback arrangements. Sale of shares by vendors. Following the expiry of the moratorium period (six months after completion), all shares owned by the vendors and/or their nominees will be eligible for sale in the open market, which could result in a share price decline. Low trading liquidity, with the major shareholders retaining a majority 86% stake in the company. Subject to local government jurisdiction. Most if not all of Hatten Land s assets and operations will be located in Malaysia and subject to its jurisdiction. As a result, it may be difficult for investors to effect service of process, or enforce a judgment obtained in Singapore against Hatten Land. In particular, judgments of a Singapore court may not be enforceable in Malaysia or such other relevant foreign jurisdiction. It may also be difficult for investors to take legal action in a foreign jurisdiction and the costs of bringing such an action may be prohibitive. 20

21 PROFIT & LOSS BALANCE SHEET Year to 30 Jun (RMm) F 2018F 2019F Year to 30 Jun (RMm) F 2018F 2019F Net turnover Fixed assets EBITDA Other LT assets Deprec. & amort Cash/ST investment EBIT Other current assets , , ,630.1 Total other non-operating income Total assets , , ,902.7 Associate contributions ST debt Net interest income/(expense) (12.8) (19.6) (27.4) (35.6) Other current liabilities Pre-tax profit LT debt Tax (27.9) (29.4) (28.9) (30.8) Other LT liabilities Minorities Shareholders' equity Net profit 68.6 (4.3) Minority interest Net profit (adj.) Total liabilities & equity , , ,902.7 CASH FLOW Year to 30 Jun (RMm) F 2018F 2019F KEY METRICS Operating 26.7 (71.9) (112.3) (124.7) Year to 30 Jun (%) F 2018F 2019F Pre-tax profit Profitability Tax (17.5) (29.4) (28.9) (30.8) EBITDA margin Deprec. & amort Pre-tax margin Associates Net margin 16.6 (0.7) Working capital changes (54.9) (132.4) (176.0) (192.4) ROA 7.2 (0.4) Non-cash items ROE Other operating cashflows (2.1) (0.4) (0.4) (0.5) Investing (29.0) (31.3) (32.4) (34.8) Growth Capex (growth) (36.3) (38.1) (40.0) (42.0) Turnover (5.5) Investments EBITDA Proceeds from sale of assets Pre-tax profit (74.0) Others Net profit n.a. n.a. 6.5 Financing Net profit (adj.) (18.7) Issue of shares EPS (6.0) Proceeds from borrowings Loan repayment Leverage Others/interest paid (51.5) 0.0 (5.9) (6.3) Debt to total capital Net cash inflow (outflow) Debt to equity Beginning cash & cash Net debt/(cash) to equity equivalent Ending cash & cash equivalent Interest cover (x)

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