Investment Highlights

• HCK is a young and rising property developer by having a potential GDV of RM3.6b.

• HCK’s property development activities will kick off when Phase 2 of EduSphere, Cyberjaya, with a gross development value (GDV) of RM245m, is launched in end-2017. Total GDV of EduSphere is RM1.5b with subsequent phases to be launched later.

• While property development would take years to build, in the meantime HCK is involved in property trading, management and investment services to generate near-term cashflow and build its track record.

• Under its property trading, bumper earnings are expected to be booked in 2019 with lump sum recognition of sales from The Duo serviced suites upon delivery of the units. The Duo’s entire project GDV is RM285m and currently 64% or equivalent to GDV of RM180m has been sold.

• Revenue could grow exponentially by 209% YoY and 315% YoY to RM90.8m and RM376.6m in 2018F and 2019F respectively. Similarly, net profit is expected to increase 199% YoY and 301% YoY to RM3.5m and RM14.1m in 2018F and 2019F respectively.

• Gearing and interest cost are expected to increase due to borrowings to fund upcoming property trading, investments and development projects. However, gearing then will be reduced upon delivery of The Duo project.

• Its F&B business is still at infancy. As the master franchiser of Australian coffee chain Jamaica Blue, HCK is operating 2 outlets and has secured 4 franchisees that will open in 2H17.

• Going forward, HCK plans 3 new development projects with a combined GDV of RM1.73b in Sepang, Semenyih, Klang Valley and Kuching, Sarawak.

• HCK announced a share split of 1 into 5 ordinary shares with rights warrants on the basis of 1 warrant for 2 subdivided shares, rights warrants issue price of RM0.05 per warrant with exercise price of RM0.96 per warrant. The corporate exercise has gone EX yesterday. Assuming full subscription rights warrants and full conversion, HCK potentially could raise RM212.1m. Minimal earnings dilution is expected as the warrants expire in 10 years. The warrants will be listed on 29 Sept 2017 and could generate investor interest.

Valuation & Recommendation

• We are initiating coverage on HCK with a HOLD call at a target price of RM1.24 based 30% on its realizable net asset value (RNAV)/share of RM1.78.

Source: JF Apex Securities Research - 25 Aug 2017