Comment

• Back into the black – HCK posted 2Q19 PATAMI of RM2.3m compared with a net loss of RM1.8m in 2Q18 as higher revenue, and lower operating costs absorbed higher interest cost and tax.

• Higher revenue - Quarterly revenue more than tripled to RM14.4m due to higher project billings, disposal of properties, inventories and project management fees.

• Improved QoQ – HCK’s 2Q19 net profit surged over 10 folds from RM0.2m in 1Q19 mainly as revenue more than doubled from RM6.3m.

• Higher property income – Revenue from Property division increased 270% YoY and 143% QoQ to RM14m. The property division posted an operating profit of RM3.9m after project billings and disposal of properties and inventories worth RM9.2m.

• Other divisions remained in the red – Revenue from Others declined 4% YoY and 18% to RM0.46m with operating losses narrowing 63% YoY and 68% QoQ to RM0.3m.

• For the first six months, HCK posted 1H19 PATAMI of RM2.5m compared to a net loss of RM1.6m in 1H18 while revenue grew 51% to RM20.7m.

Valuation & Recommendation

• Within expectation – 1H19 performance was within expectation as revenue achieved 50% of our full year forecast of RM41.4m while 6 months PATAMI accounted for 39% of our FY19 estimate of RM6.5m. Future earnings growth will be driven by higher take up of the Edusphere @ Cyberjaya as well as the development of Edumetro (previously Remix 2) in Subang Jaya.

• Earnings forecast maintained – We are keeping our FY19 and FY20 earnings estimates.

• Maintain SELL call with an unchanged target price of RM1.02 based on a discount of 40% on a realizable net asset value (RNAV)/share of RM1.70. The steep discount is due to the unfavourable outlook on the property sector and the delay in the Duo project, which prompted HCK to take over the development of Remix 2.

Source: JF Apex Securities Research - 29 Aug 2019