Hafary Holdings

UOBKayhian on 20 Mar 2013

Valuation

·          Hafary Holdings (Hafary) is trading at 3.19x FY12 PE and 1.58x FY12 P/B.

·          As at 30 Jun 12, the Low family owned 66.11% of Hafary. With the management being also the major shareholder of the company, we believe their interests will be more aligned with shareholders.

·          Share price catalysts include strong earnings growth supported by buoyant public housing demand.

Investment Highlights

·          Hafary is a leading supplier of surfacing materials toSingapore’s construction sector. Revenue contribution from the general (retail) and project (project developers, construction companies) segments are 60% and 40% respectively.

·          Market leader for supply of tiles. Hafary is a major player in the supply of tiles in Singapore. There is no close competitor in Singapore that is of similar size and carries the wide range of products that Hafary offers. With its involvement in the supply of tiles to HDB upgrading flats and the new build-to-order (BTO) launches, Hafary would be a beneficiary of the construction boom. 50,000 BTO units were launched in 2011 and 2012. With 3,346 new BTO flats launched in January, and another 3,890 units expected in Mar 13, the public housing construction demand is expected to remain strong this year. 

·          Scarcity premium. As one of only two local tile suppliers listed on SGX, we believe Hafary may be able to command a scarcity premium, attracting investors who want to invest in the local housing construction boom.

·          Valuation backed by tangible assets. As at end-FY12, Hafary held four leasehold properties, which are held at cost on balance sheet. As at 31 Dec 12, NAV of Hafary was S$0.27. Value of the four leasehold properties held at cost is worth S$0.15/share.

·          Future plans: Growing sanitary business segment to drive growth. While supply of tiles continues to be the top revenue contributor for Hafary, management is looking to grow its sanitary business segment with its in-house brand, ilife.

Financial Highlights

·          Net profit for 1HFY13 was boosted by a one-time gain of S$23.8m from sale of its development property at 79 Aljunied road.

·          Excluding the one-time gain, 1HFY13 profit before tax would be S$5.2m, a 51.4% gain over the prior year. 

·          Revenue from general and project segment increased 16.5% and 58.9% yoy respectively.