The drop in prices of major commodities would work in favour of property developer Hunza Properties Bhd (Hunza Prop) through lower construction costs for its Gurney Paragon mall project, said CIMB Research.
The research firm said the current costing for the mall construction had fallen to RM300 million from its previous estimate of RM400 million to RM500 million made six months ago.
“The management said an ideal situation would be for the current input prices to fall by 10% before construction starts. Given that steel prices is around RM2,000 a tonne, the comfort level is likely to be near RM1,800 a tonne,” it said. It maintained a neutral stance on the company.
“In the absence of an earnings revision, our target price of RM1.20 remains intact as we continue to apply a 65% discount to its unchanged revised net asset value (RNAV) per share of RM3.52.”
Hunza Prop’s cloudier earnings prospects coupled with its low share liquidity underpinned CIMB’s underperform recommendation on the company.
CIMB also said Hunza Prop was in negotiations on the funding of its mall. “While it is still in negotiations with relevant parties on external financing, its own funding would comprise current cash on hand, billing of its locked-in but unbilled sales as well as further sales of current projects.”
Although it was positive on the progress of its Infinity and Gurney Paragon condominium projects, which are expected to be completed by end-2009 and end-2010, respectively, CIMB Research expressed concern on the lacklustre sales due to weak consumer sentiments.
“Consumers would be in no hurry to buy big-ticket items such as properties until there is more certainty on the economic front. We have therefore left our sales assumptions and earnings estimates unchanged,” CIMB Research said. Hunza Prop’s unbilled sales stood at RM256.3 million as at end-December last year.
While it was unlikely there would be price discounts for Hunza Prop’s Gurney Paragon project as land is scarce in that area, CIMB Research said there could be price discounts for the Infinity project.
“Infinity appears to be Hunza Prop’s key focus as billings raked in can be used for the funding of its other projects. Infinity’s unpaid construction costs is now at RM50 million which could be settled by its unbilled sales amounting to RM86 million as at end-Dec 2008.”
The balance of the collection could then be utilised for Gurney Paragon. Given it had placed emphasis to speed up sales and the hefty margins for the project, Hunza could be more willing to offer discounts for Infinity than other projects, it added. - The Edge Daily
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