Saturday 19 July 2014

Asiapac (Imago) Vs Hunza (Paragon)

Investors of Asiapac are surely anticipating the grand opening of Imago Mall which is scheduled to be in the end of this year.

Imago Mall is a grade A shopping mall in Kota Kinabalu with a net lettable area (NLA) of 800,000 sq ft. Asiapac expects it to contribute RM70mil of annual rental income once fully tenanted. 

       Imago Mall

Gurney Paragon Mall, a new mall at the prestigious Gurney Drive in Penang island, has been up and running since 23th July 2013, though it was officially launched later on 10th Oct 2013. The first phase which comprises 15% of NLA has been opened to public a year earlier.

This "luxury" mall which sits just next to CMMT's Gurney Plaza, has an NLA of 700,000 sq ft, also with condominiums above it like Imago Mall.

Hunza, the owner and constructor of Gurney Paragon Mall, is expected to enjoy good recurring rental income from it.

Its management targets an annual rental income of RM60mil from the mall once fully occupied.

So both Asiapac (Imago Mall) and Hunza (Gurney Paragon Mall) are quite similar.

       Gurney Paragon Mall

It has been exactly one year since the whole Gurney Paragon Mall was opened to public. How much rental profit has Hunza pocketed from it so far?

Hunza currently has 2 main business segments which are property development and property investment. Its construction & trading segments are negligible.

Its financial year ends at 30th June each year. So the financial impact of Gurney Paragon Mall will be included from FY14Q1 onward.

Hunza's FY14 Quarterly Results
RM mil FY14Q3 FY14Q2 FY14Q1
Revenue 37.7 33.0 31.3
Gross Profit 14.8 14.5 13.2
PBT 2.6 12.1 4.7
PATAMI 0.2 7.4 1.4
Core Net Profit 4.3 2.4 1.4

As FY14Q2 has a one-off fair value gain of RM6.7mil and FY14Q3 has a one-off payment of RM5.5mil as gratuity to retired director, it's better to look at its core net profit given by analyst.

After 9 months into FY14, its total core net profit stands at RM8.1mil which is far less than FY13's whole year core net profit of RM21.8mil.

Why does the profit drop while it is starting to receive rental income from the shopping mall? Is the property development segment affecting Hunza negatively?

Hunza currently only has one on-going project at Bertam but it has contributed quite consistently, though not much, to Hunza in FY14.

RM mil FY14Q3 FY14Q2 FY14Q1
Prop Dev Rev 26.4 22.9 23.7
Prop Dev EBIT 4.9 3.8 9.2

The problem lies in its property investment segment.

RM mil FY14Q3 FY14Q2 FY14Q1
Prop Inv Rev 10.9 9.6 7.1
Prop Inv EBIT 1.8 2.5 -0.3
Prop Inv Interest -1.3 -4.1 -3.5
Prop Inv PBT 0.5 -1.6 -3.8

Total revenue from rental income reaches RM27.6mil in 9 months, so it could give Hunza approximately RM40mil in the first year. This is not bad as it achieves 67% of management's target at 80% occupancy rate.

However, due to the high interest payment, this segment is still in red with a loss before tax of RM4.9mil for 9MFY14.

Hunza's finance cost at 9MFY14 is RM9.3mil, which is 365% more than RM2.0mil in the corresponding period of FY13.

Similarly, Asiapac has accumulated quite a lot of debts from constructing its mall. So I guess the high finance cost will also start to appear in Asiapac's income statement once the mall is completed?

Other things like promotional expenses and higher direct operating overhead seem inevitable too.

However, all these should not be too visible in Asiapac's income statement as the earnings can still be supported by its high unbilled sales.

So, it takes time for a new mall to generate expected recurring profit, as the mall needs time to mature.

       Gurney Paragom Mall, with Hunza Tower

Anyway, with a new investment property, the assets of both Hunza & Asiapac will increase significantly.

Hunza seems to be suffering at the moment in term of financial results. However, it is not wise to overlook this company, as it has a diamond in Bayan Baru, Penang.

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