Company Update

• HCK has appointed Kerjaya Prospek as the main contractor for the Empire Remix 2 development in USJ1, Subang Jaya.

• The RM280 million contract covers the construction of main building for the proposed project of four (4) towers on three (3) storey podium comprising retail units, offices, common area and facilities with four (4) level of basement car park. The contract shall commence on 1 April 2019 and to be completed within 28 months.

• To recap, on 15 January, HCK entered into a joint venture agreement with landowner Projek Muara Sdn Bhd and beneficial owner Dergahayu Sdn Bhd to take over the development of Empire Remix 2 from cash-strapped Mammoth Empire Holding Sdn Bhd (MEH).

• Previously in 2012, HCK purchased 2 properties en bloc in Empire Remix 2 from MEH. However, both properties were not completed due to MEH’s financial troubles. The properties are: - The Duo: 28-storey serviced office suites (studio) with GDV of RM285m - The Cubiz: 12-storey suites with GDV of RM95m

• HCK will rebrand the Empire Remix 2 development into an integrated education city. However, we are concerned that the financing for the development would lift its gearing level from 0.8x currently.

Valuation & Recommendation

• Maintaining earnings forecast – We are keeping our EPS estimates as the project would only be completed after 2 years.

• Maintain SELL call with an unchanged target price of RM1.06 based a discount of 40% on its realizable net asset value (RNAV)/share of RM1.78. The steep discount is due to the slowdown in the property sector.

Source: JF Apex Securities Research - 13 Feb 2019