HAFARY HOLDINGS (HAFA SP)

Optimistic outlook, sleeker operations and a crown jewel asset

Maintain BUY and target price of S$0.33. Hafary?s status as Singapore?s leading tile

supplier suggests that it will be a major beneficiary of the increasing housing in

Singapore, as it has been a key tile supplier to the HDB BTO programme in FY13. Its

newly-completed headquarters (HQ) at 105 Eunos Ave 3, could also potentially be its

next crown jewel, due to its close proximity to the upcoming Paya Lebar Commercial

Hub in 2014.

INVESTMENT HIGHLIGHTS

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that it has a market share of about 50% of the general segment (eg interior design

firms, walk-in customers) and 15% of the project segment (eg HDB, developers).

Revenue from the general and project segments saw an impressive CAGR of

21.5% and 38.1% respectively from FY07-13. As the number of housings in

Singapore increases, the general market for Hafary is also likely to get bigger as

resale flat owners renovate their new homes.Market leader and beneficiary of Singapore?s housing boom. Hafary estimates

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new HQ at 105 Eunos Ave 3. Boasting a net lettable area of 132,000sf, Hafary will

be leasing out unutilised floor space of approximately 66,000sf as a new source of

income. Based on average recent rental transactions in the vicinity (S$1.80psf) ,

we expect Hafary to generate additional annual rental income of about S$0.8m

(14.0% of Hafary?s FY13 core earnings) based on the 66,000sf. Currently 40,000sf

has been leased out.Earnings boost from new rental income source Hafary recently relocated to its

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Changi North is also expected to result in huge cost savings for Hafary. In the

past, delivery trucks had to stop at three different warehouses to pick up tiles. With

the larger warehouse facility, Hafary has housed all its tiles in a singular location,

(eg. retail segment tiles at Changi, project segment tiles at Defu) allowing the

company to enjoy huge cost savings from reduced manpower and transport costs.Cost savings from streamlined operations. The new warehouse facility at

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believe this newly-completed HQ could be Hafary?s new crown jewel. The new HQ

with a remaining tenure of 25 years is strategically located near the future Paya

Lebar Commercial Hub, and is a 10-minute walk from Paya Lebar Mrt Station.With

the impending TOP of the Paya Lebar Square by 2Q14, fair value of the new HQ is

currently worth approximately S$50m according to Hafary?s FY13 annual report,

which is S$28.5m (S$0.066/share) in excess of its book value.Crown Jewel Asset. We visited Hafary?s new office at 105 Eunos Ave 3 and

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of S$4m on its investment in associate, HCCM. After which, no further loss is

expected to be recognised from HCCM going forward. While management is

optimistic that operations will gradually stablise, they are also open to cashing out

of HCCM if a good opportunity arises. As the investment in HCCM has been fully

impaired, any proceeds from the possible sale will be recognised as a gain on

disposal for Hafary.Nothing to lose, only something to gain. Hafary recently took a full impairment

KEY FINANCIALS

Year to 30 Jun (S$m) 2012 2013 2014F 2015F 2016F

Net turnover 63.1 83.3 96.4 112.7 129.6

EBITDA 8.1 30.6 14.1 16.5 19.0

EBIT 7.1 29.2 12.3 14.4 16.9

Net profit 4.5 22.3 8.1 9.7 11.4

Adj. net profit 4.5 5.9 8.1 9.7 11.4

Adj. EPS (cents) 1.3 1.5 1.9 2.2 2.7

Adj. PE (x) 17.8 15.7 12.1 10.2 8.6

P/B (x) 2.8 2.0 1.9 1.7 1.5

Dividend yield (%) 5.6 22.8 5.4 5.4 5.7

Adj. PATMI margin (%) 7.2 7.1 8.4 8.6 8.8

Net gearing (%) 156.2 117.6 105.6 99.0 89.8

Interest cover (x) 6.6 24.2 8.7 9.6 10.5

ROE (%) 15.4 48.9 17.6 18.6 19.2

Source: Hafary, Bloomberg, UOB Kay Hian

This ompany Update Technical View

Source: NextView

The stock appears to be supported near S$0.19 and a break

above S$0.275 could test S$0.32.

Peer Comparison

Company Ticker

Price

(lccy)

Mkt

Cap

(US$m)

PE

2012

(x)

PB

2012

(x)

White Horse Bhd WHIT MK 1.7 130 9.3 0.58

Royal Ceramics Lanka RCL SL 108.2 95 6.1 1.83

Somany Ceramics Ltd SOMC IN 85 53 11.7 2.33

Kpt Industries 1805 TT 13.45 36 10.3 1.14

Average 9.4 1.5

Hafary Holdings Ltd HAFA SP 0.25 86 20.0 3.11

Straits Times Index 3,432.76 14.0 1.52

Source: Bloomberg, UOB Kay Hian

Financials

Year to 30 Jun (S$m) FY11 FY12 FY13F FY14F FY15F

Net turnover 60.4 63.1 81.3 96.4 112.7

Gross profit 24.7 25.9 32.5 38.5 45.1

EBITDA 10.5 8.1 35.1 14.1 16.5

EBIT 9.7 7.1 33.9 12.3 14.4

Net profit 7.5 5.1 26.9 8.9 10.5

Adj. net profit 7.1 4.9 6.8 8.4 10.0

EPS (sen) 4.2 2.5 13.1 3.7 4.4

Adj. EPS (sen) 2.1 1.3 1.6 1.9 2.2

Adj. PE (x) 10.6 17.8 15.8 13.4 11.3

P/B (x) 3.0 2.8 1.8 1.7 1.5

Dividend yield (%) 2.0 5.6 11.0 5.0 5.0

Adj. PATMI margin

(%) 11.4 7.2 7.9 8.3 8.4

Net gearing (%) 53.0 45.7 44.0 44.0 42.0

Interest cover (x) 14.9 2.7 23.9 7.7 8.5

ROE (%) 33.2 16.5 46.7 13.7 14.3

Source: Hafary, Bloomberg, UOB Kay Hian

Background

What?s New?



has enjoyed three strong catalysts including: a) a second

interim dividend of 1.5 S cents/share (post-split), b) a

transfer to SGX Mainboard from Catalist, and c) 2-for-1 share

split. Post the share split, our revised sum-of-the-parts

(SOTP) target price is S$0.33/share, which implies an upside

of 32.0%.Triple boosters. Since early April, Hafary Holdings (Hafary)

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cents (adjusted for share split), Hafary has announced a

second interim dividend of 1.5 S cents/share. This amounts

to a total payout of 2.75 S cents/share (dividend yield:

11.0%) which has exceeded our full-year forecast of 2.5 S

cents/share. Beyond FY13, we conservatively forecast the

group to deliver dividends of 1.25 S cents/share each in FY14

and FY15, which implies a dividend yield of 5.0%. However,

there could be upside if the group monetised the hidden

value of its industrial properties.Dividend bonanza. On top of its interim dividend of 1.25 S

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approval in principle for the transfer of its listing status from

Catalist to SGX Mainboard. This is clearly positive as the

stringent requirements of the transfer will help reaffirm the

company?s attractiveness to investors. Interestingly, we did

an analysis of stocks that transferred to SGX Mainboard and

noted that they enjoyed an average gain of 16% in the three

months after the announcement of a transfer.In the premier league now. Hafary recently secured the

3-mth % Chg

Stock Annc date

on Annc

Date

After Annc

Date

EZION HOLDINGS 30 Oct 09 11.7 (5.9)

ASIASONS CAPITAL 8 Jun 10 18.2 (2.6)

SAPPHIRE CORP. 7 Jan 11 33.3 (15.0)

SILVERLAKE AXIS 21 Apr 11 (4.4) 27.7

MENCAST HOLDINGS 22 Sep 11 28.7 (10.7)

KREUZ HOLDINGS 3 Sep 12 27.5 21.5

SIIC ENVIRONMENT 11 Oct 12 3.9 50.9

TOP GLOBAL 8 Nov 12 (10.0) 22.2

SWISSCO HOLDINGS 2 Nov 12 (0.5) 45.7

INTERRA RES. 18 Oct 13 0.0 0.0

OXLEY HOLDINGS 6 Dec 12 5.4 47.7

CHASEN HOLDINGS 4 Jan 13 4.5 15.2

Average 9.9 16.4

Source: Bloomberg, UOB Kay Hian

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has also gone ex for a 2-for-1 share split. In the long term,

this could enhance the trading liquidity of the stock.Split could potentially enhance liquidity. Hafary?s stock

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tiles and wood flooring in Singapore, the group will benefit

from strong sales of BTO properties. The stock?s valuation is

also underpinned by a portfolio of industrial buildings held at

low cost on balance sheet. Any plans to unlock hidden value

of the property portfolio is expected to be an upside catalyst

for the stock, in our view.Solid fundamentals. Being the leading supplier of premium

Valuation

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S$0.33. As one of the major supplier of tiles in Singapore,

Hafary is likely to continue with its outstanding performance

with the strong influx of BTO supply. Potential share catalysts

include monetising the hidden value of its industrial

properties, strong earnings growth and better-than-expected

dividends.

Hafary is a leading supplier of premium tiles, wood flooring

and sanitary ware in Singapore. The company carries over

3,000 products sourced directly from manufacturers in

Europe (Spain and Italy) and third party manufacturers from

People?s Republic of China (PRC). Some of the notable

projects that Hafary has supplied to include JCube, The

Atrium@Orchard and NUH Medical Centre.Still on our BUY list. We maintain BUY with a target price of