Quarterly Results

• Narrowed losses – HCK’s 4Q17 net profit grew 34% YoY to RM6.8m after incorporating a fair value gain of RM16m from its investment properties and increased minority interest to RM7.3m after HCK reduced its stake two subsidiaries in December and effectively turning them into associates.

• Higher revenue - Quarterly revenue jumped 21% YoY to RM10m mainly due to improved progress billings from its ongoing projects. Overall, HCK’s FY17 net profit surged 272% YoY to RM5.6m while revenue rose 45% to RM29.8m.

• Improved QoQ – On a QoQ basis, its 4Q17 net profit improved significantly against a net loss of RM0.67m in the preceding quarter while revenue gained 65% QoQ.

• Property driving growth – Revenue from Property division increased 21% YoY and 72% QoQ to RM9.3m, making up the lion share of revenue. Similarly, operating profit from this division rose 168% YoY and over 2000% QoQ to RM16.7m due to the fair value gain.

• F&B remained in the red – Sales from its Jamaica Blue coffee chain grew 14% YoY and 10% QoQ to RM704k while operating losses were flat at RM60k vs RM24k in 3Q17.

• Better year ahead - We expect earnings from property development to rise this year after the launch of serviced apartments at EduSphere, Cyberjaya in end-Dec with a gross development value (GDV) of RM245m. Similarly, the F&B business is expected to improve in 2018 with 4 new franchisees commencing operations.

• In 2019, bumper earnings are expected to be booked

with lump sum recognition of sales from The Duo serviced suites (GDV of RM285m) upon delivery of the units.

• Gearing and interest cost are expected to remain high

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

• In line – FY17 revenue of RM29.8m exceeded of our full year forecast of RM27.8m while its core PBT of RM1.96m (excluding RM16m fair value gain) is in line with our estimate of RM1.4m loss before tax. As such, we are keeping our estimates for FY18 and FY19.

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

Source: JF Apex Securities Research - 27 Feb 2018