Quarterly Results

• Lower earnings - 2Q17 net profit declined 13% YoY to RM355k due to higher operating expenses and interest expense. This was despite revenue rising 45% YoY to RM7.7m.

• Improved QoQ – On a QoQ basis, net profit improved from a net loss of RM1.1m in 1Q17 while revenue grew 29% QoQ.

• Property driving growth – Revenue from Property division increased 53% YoY and 34% QoQ to RM7.2m, making up the lion share of revenue. Similarly, operating profit from this division rose 130% YoY and 721% QoQ to RM2.15m.

• F&B still bleeding – Sales from its Jamaica Blue coffee chain dropped 22% YoY and 16% QoQ to RM0.5m while operating losses widened by 61% YoY and 122% QoQ to RM0.8m.

• Flat year ahead - We expect flat earnings in 2017 as its property development will only kick off next year. The F&B business is expected to improve in 4Q17 as HCK has signed 4 franchisees that will start operating by September.

• Going forward, 2018F earnings will come from the development of Phase 2 of EduSphere, Cyberjaya which will be launched in end-2017 with a gross development value (GDV) of RM245m.

• In 2019, bumper earnings are expected to be booked 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.

• As such, revenue is expected 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.

Valuation & Recommendation

• Forecasts maintained – 1H17 revenue achieved 47% of our full year forecast while the company is expected to turn around its RM0.5m net loss towards our full year estimate of RM1.2m net profit. As such, we are keeping our forecast for 2017 to 2019.

• Maintain HOLD call with an unchanged target price of RM1.24 based 30% on its realizable net asset value (RNAV)/share of RM1.78.

Source: JF Apex Securities Research - 30 Aug 2017