MONEY TALK HATTEN LAND (HATT SP) (Initiate Coverage)hattenland.listedcompany.com/misc/UOBKayHian_HattenLand_14March2017.pdfHarbour City Harbour City Mall 1831 1,766,847 1,033,914 15

1

R e t a i l M a r k e t M o n i t o r T u e sd a y , 14 M a r ch 2 0 17

S I N G A P O R E

MONEY TALK

HATTEN LAND (HATT SP) Harbouring Blueprints For Malacca’s Skyline

Hatten Land is one of Malacca’s leading property developers, specialising in integrated residential, hotel and commercial developments over the last 10 years. Dataran Pahlawan Malacca Megamall, Hatten Square Suites & Shoppes as well as Terminal Pahlawan are among its completed projects in Malacca. Currently, it is developing three mixed projects and one commercial property (7.8m sf by GFA). Initiate coverage with a BUY and SOTP target price of S$0.43. Clear earnings visibility. Hatten Land’s current development portfolio comprises

three integrated mixed-use projects (Hatten City Phase 1 & Phase 2 and Harbour City) and a commercial project (Vedro by the River). With the exception of Harbour City (9% completion), the other projects are already in advanced stages of completion and sales.

Having your cake and eating it too. Hatten Land’s right of first refusal (ROFR) agreement with its sponsor grants it access to 22 land plots (9.2m sf). The company has entered into a non-binding MOU to acquire five of these land plots at value- accretive prices (two of which are currently under a sale-and-purchase agreement). This would allow Hatten Land to remain asset-light, and push landbanking risk to its parent company Hatten Group. This also affords Hatten Land the luxury of choice in selectively developing projects based on its business strategy and the competitive environment.

Established track record in Malacca. Hatten Land has accumulated over 10 years of experience, stemming from its roots as the property development arm of parent company Hatten Group. Its first development project - Dataran Pahlawan Malacca Megamall - is now one of Malacca’s largest shopping malls.

Beneficiary of uplift in domestic hospitality. Hatten Land looks poised to tap into Malacca’s burgeoning tourism sector through investor demand for its serviced residences.

Our target price is S$0.43, premised on SOTP valuation. Our valuation incorporates the revalued net asset valuation of existing development projects and net present value of development land (as if complete) under a non-binding MOU with Hatten Group. A blue sky scenario could see the target price expanding to S$0.53 if the ROFR discount narrows to 60% upon more details on the remaining ROFR exercise price and development plans.

Key risks are: a) no assurance that the ROFR/call option for land acquisition will be exercised; b) bumiputera lot quota policy; c) rental obligations for units under sale and leaseback arrangements; d) sale of shares by vendors; e) potential currency translation risk; f) development risks; g) low trading liquidity; and h) local government policies.

KEY FINANCIALS Year to 30 Jun (RMm) 2015 2016 2017F 2018F 2019F Net turnover 436.2 412.4 598.8 639.8 668.8 EBITDA 35.3 89.7 89.9 92.6 98.6 Operating profit 25.8 68.6 (4.3) 58.7 62.5 Net profit (rep./act.) 25.8 68.6 (4.3) 58.7 62.5 Net profit (adj.) 25.8 68.6 55.7 58.7 62.5 EPS (sen) 1.9 5.0 4.1 4.3 4.6 PE (x) 15.0 5.6 6.9 6.6 6.2 P/B (x) 8.9 6.4 2.1 1.6 1.3 EV/EBITDA (x) 14.2 6.2 7.3 8.7 9.9 Dividend yield (%) 0.0 0.0 0.0 1.5 1.6 Net margin (%) 5.9 16.6 9.3 9.2 9.3 Net debt/(cash) to equity (%) 262.7 278.0 145.9 176.6 199.1 Interest cover (x) 2.6 7.0 4.6 3.4 2.8 ROE (%) 59.0 113.1 29.9 24.5 21.2 Consensus net profit - - - - - UOBKH/Consensus (x) - - - - - Source: Hatten Land, Bloomberg, UOB Kay Hian

BUY (Initiate Coverage) Share Price S$0.285

Target Price S$0.43

Upside +50.9%

COMPANY DESCRIPTION

Hatten Land operates as a property developer in Malaysia. The company focuses on residential, hotel and commercial developments. GICS sector Real Estate

Bloomberg ticker: HATT SP

Shares issued (m): 1,375.1

Market cap (S$ m): 391.9

Market cap (US$ m): 277.5

3-mth avg t’over (US$m): 0.7

PRICE CHART

Source: Bloomberg

ANALYSTS

Singapore Research Team +65 6535 6868 [email protected]

0

80

160

240

320

400

480

560

0.00

0.05

0.10

0.15

0.20

0.25

0.30

(%)(lcy) HATTEN LAND LTD Hatten Land Ltd/FSSTI Index

0

20

40

60

Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17

Volume (m)

2


S I N G A P O R E

Investment Highlights

Distinct earnings visibility on healthy pre-sales. Hatten Land’s current development portfolio (7.8m sf by GFA) comprises three integrated mixed-use development projects, (Hatten City Phase 1 & Phase 2 and Harbour City) and a commercial project (Vedro by the River). These projects, with the exception of Harbour City, are in advanced stages of completion and sales.

Hatten City Phase 1 (comprising Elements Mall, SilverScape Residences and Hatten Suites) was fully completed in Mar 16 (70.7% sold), with Hatten City Phase 2 now 66% complete (53.5% sold) while Vedro by the River 65% complete (65% sold). Harbour City (9% completion) remains the sole project not in advanced stages of completion although it is now about 40% sold.

Having your cake and eating it too. On 10 Feb 17, Hatten Land entered into a non-binding MOU covering five land plots from parent company (potential GFA of 9.2m sf) at value-accretive prices (RM30-80psf). The company subsequently entered into a conditional sale-and-purchase (SPA) agreement to acquire two of the five MOU land plots (potential GFA of nearly 5m sf). We have factored in the acquisitions of these five land plots on a complete basis in our SOTP valuation (see below).

Healthy land acquisition pipeline. Hatten Land also has the ROFR over 17 land plots which are not covered under the MOU or SPA agreements. We have not factored in these land plots in our valuation due to lower visibility on the injection timeline. However, these could contribute to valuation expansion should these land assets be injected at similarly accretive prices as the above agreements.

Established track record in Malacca. From its first development project (Dataran Pahlawan Malacca Megamall, now a leading mall in Malacca), Hatten Land has accumulated over 10 years of development activity, stemming from its roots as the property development arm of parent company Hatten Group.

Beneficiary of uplift in domestic hospitality. Hatten Land looks poised to tap into Malacca’s burgeoning tourism sector through investor demand for its serviced residences (Hatten Suites, SilverScape Residences, Imperio Residence and Harbour City Suites). This segment has witnessed growing visitor arrivals with tourism receipts reaching a new high in 2015. We also reckon that Malacca’s status as a UNESCO site (since 2008) will continue to be beneficial to the domestic residential market.

FIGURE 1: HEALTHY SALES RECORD

No. of Units GFA (sf) Net Saleable

Sold (%) * Area (sf)

Hatten City Phase 1

Elements Mall 1,530 1,530,238 686,682 34

SilverScape Residences 745 820,188 591,638 85

Hatten Suites 589 240,616 165,132 93

Hatten City Phase 2 Imperio Mall 786 622,313 285,885 60

Imperio Residence 950 797,478 545,478 47

Vedro by the River Vedro by the River 736 213,547 95,504 65

Harbour City

Harbour City Mall 1831 1,766,847 1,033,914 15

Harbour City Suites 648 661,498 297,706 81

Harbour City Resort 637 586,771 407,545 24

Harbour City Luxury Hotel 325 322,959 233,055 n.a.

Total 9,054 7,845,976 4,342,539 Source: Hatten Land, UOB Kay Hian *As at 30 Jun 16

3


S I N G A P O R E

FIGURE 2: MALAYSIAN DEVELOPERS UNDER OUR COVERAGE Price Target Upside/ Market Curr Fwd Curr Fwd Book Price/ RNAV Fwd Discount Company Ticker Rec 13 Mar 17 Price (Downside) Cap. PE PE Yield Yield NAV ps Book ps ROE Gearing to RNAV (RM) (RM) to TP (%) (RMm) (x) (x) (%) (%) (RM) (x) (RM) (%) (%) (%)

EcoWorld ECW MK HOLD 1.48 1.43 (3.4) 980 29.3 18.4 0.0 0.0 1.38 1.1 2.60 5.9 60.4 (43)

Malaysian Resources MRC MK HOLD 1.52 1.43 (5.9) 734 22.6 20.3 1.3 1.3 1.28 1.2 1.91 4.0 123.8 (20)

Mah Sing MSGB MK HOLD 1.39 1.58 13.7 753 9.1 9.7 4.6 4.4 1.36 1.0 2.87 8.4 2.0 (52)

SP Setia SPSB MK HOLD 3.41 3.10 (9.1) 2,188 12.6 17.8 5.9 5.1 2.83 1.2 5.16 5.5 16.2 (34)

Sunway Bhd SWB MK BUY 3.16 3.60 13.9 1,440 12.2 11.9 3.2 3.2 3.67 0.9 4.52 6.9 40.9 (30)

UEM Sunrise UEMS MK SELL 1.23 0.95 (22.8) 1,255 30.2 27.3 2.4 2.4 1.50 0.8 2.14 3.3 40.7 (43)

Source: Bloomberg, UOB Kay Hian

FIGURE 3: SINGAPORE DEVELOPERS UNDER OUR COVERAGE Price Target Upside/ Market Curr Fwd Curr Fwd Book Price/ RNAV Fwd Discount Company Ticker Rec 13 Mar 17 Price (Downside) Cap. PE PE Yield Yield NAV ps Book ps ROE Gearing to RNAV (S$) (S$) to TP (%) (S$m) (x) (x) (%) (%) (S$) (x) (S$) (%) (%) (%)

CapitaLand CAPL SP BUY 3.69 4.30 16.5 15,672 23.7 24.3 2.2 2.2 4.15 0.89 5.06 3.9 41.4 (27)

City Devt CIT SP BUY 10.50 11.40 8.6 9,548 16.6 16.5 1.5 1.5 10.22 1.03 12.95 5.7 16.3 (19)

Ho Bee HOBEE SP BUY 2.34 3.02 29.1 1,558 16.8 14.1 1.7 1.7 4.16 0.56 3.77 3.7 43.9 (38)

Wing Tai WINGT SP BUY 1.90 2.54 33.7 1,470 23.5 20.0 3.2 3.2 4.09 0.46 3.39 2.4 3.3 (44)

Source: Bloomberg, UOB Kay Hian

4


S I N G A P O R E

Valuation

Our target price is S$0.43, based on SOTP.

There are two key components to our SOTP analysis: a) the RNAV from existing development projects with clear earnings visibility, and b) the potential value accretion from its pipeline of land acquisitions (covered under MOU/SPA agreements) from parent company Hatten Group.

We have not factored in further accretion from Hatten Group’s remaining ROFR land pipeline, as they are not covered under the MOU/SPA agreements. This would imply further valuation expansion once Hatten Land sheds more light on injection details for these land plots.

We impute a 30% discount to our RNAV for existing projects and a significantly higher discount of 80% for its MOU/SPA land. We have valued the MOU/SPA land on an “as if” complete basis, ie fully completed and sold, before discounting the attributable profits to the present.

Bearing in mind that the pipeline land plots under the MOU/SPA agreements do not yet belong to Hatten Land, we see it fit to impute a markedly higher discount rate of 80%, given the substantial risk profile associated with the long gestation period (acquisition and completion of sales and development). We also note that one of the MOU land plots is still under land reclamation works.

FIGURE 4: SOTP VALUATION Asset Tenure Sector GFA Stake Overall ASP No. of % RNAV (sf) (%) (RMpsf) units sold* (RMm)

Development properties Elements Mall Leasehold (99 years) Retail 1,530,238 100 2,000 1,530 34.0 400

SilverScape Residences Leasehold (99 years) Serviced Residence 820,188 100 750 745 81.0 24

Hatten Suites Leasehold (99 years) Hospitality 240,616 100 1,400 589 93.0 (3) Imperio Mall Leasehold (99 years) Retail 622,313 100 2,300 786 60.0 110

Imperio Residence Leasehold (99 years) Serviced Residence 797,478 100 850 950 47.0 61

Vedro by the River Freehold Retail 213,547 100 2,500 736 65.0 21 Harbour City Mall Leasehold (99 years) Retail 1,766,847 100 2,300 1,831 15.0 961 Harbour City Suites Leasehold (99 years) Hospitality 661,498 100 1,000 648 78.7 55 Harbour City Resort Leasehold (99 years) Hospitality 586,771 100 1,700 637 24.0 127 Harbour City Luxury Hotel Leasehold (99 years) Hospitality 322,959 100 1,200 325 0.0 (9) NPV of Development profits (1) 1,747 Net Book Value (2) 186 RNAV (1+2) 1,934 RNAV (1+2) (S$m) 636 Diluted shares (m) 1,359 Fully diluted RNAV per share (RM) 1.42 Conversion rate (S$/RM) 3.04 Fully diluted RNAV per share (S$) 0.47 Peers’ trading discount to RNAV -30% Fair Value (S$) 0.33 NPV of ROFR land under MOU (RM) 2,044 Discount -80% ROFR land value (RMm) 409 SOTP value (S$m) 580 SOTP (S$) 0.43

*As of 30 Jun 16 Source: Hatten Land, UOB Kay Hian

5


S I N G A P O R E

FIGURE 5: SENSITIVITY ANALYSIS RNAV /ROFR Discount -60% -65% -70% -75% -80% -85% -90% -95% -100%

-25% 0.55 0.52 0.50 0.47 0.45 0.43 0.40 0.38 0.35

-30% 0.53 0.50 0.48 0.45 0.43 0.40 0.38 0.35 0.33

-35% 0.50 0.48 0.45 0.43 0.40 0.38 0.35 0.33 0.30

Source: UOB Kay Hian

Sensitivity analysis. The table above highlights the sensitivity of our SOTP valuation to various discount rates for existing projects and the ROFR land. Our base case is 30% for existing projects and 80% for the ROFR land, which implies a fair value of S$0.43/share.

Our sensitivity analysis indicates a worst-case scenario valuation of S$0.33/share should there be zero value attributable to the ROFR land, ie 100% ROFR discount, 30% discount to RNAV. However, we think this is rather unlikely as major shareholders have retained a 86% stake (according to Bloomberg) in Hatten Land. The company has also announced a MOU as well as SPA over five land plots held by parent company Hatten Group.

Our fair value will expand to S$0.53/share once we lower the ROFR land value discount to 60% (RNAV discount still kept at 30%).

6


S I N G A P O R E

Company Background

BUSINESS OVERVIEW

Hatten Land is one of Malaysia’s leading property developers, specialising in integrated residential, hotel and commercial developments, and is headquartered in Malacca, Malaysia.

Hatten Land’s development projects cover 7.8m sf by GFA, and consist of Hatten City Phase 1 (SilverScape Residences, Elements Mall, Hatten Suites), Hatten City Phase 2 (Imperio Residence, Imperio Mall), Harbour City (mixed development with retail/hospitality component) and Vedro by the River.

FIGURE 6: DEVELOPMENT PROJECTS

Source: Hatten Land

FIGURE 7: DEVELOPMENT PROJECTS/ROFR PIPELINE (THEA WELLNESS/CYBERJAYA)

Source: Hatten Land

7


S I N G A P O R E

HISTORY

Hatten Land was the property development arm of parent company Hatten Group, which commenced its first property development project in 2005, a then-abandoned mall project (held under holding company Lianbang), known today as Malacca’s largest shopping mall, Dataran Pahlawan Melaka Megamall.

Successful completion of this project paved the way for further developments in Malacca, as the group ventured into the hospitality and retail segments, in addition to expanding its real estate investment portfolio.

FIGURE 8: TRACK RECORD AS DEVELOPMENT ARM OF SPONSOR HATTEN GROUP

Source: Hatten Land

8


S I N G A P O R E

GROUP STRUCTURE

FIGURE 9: MANAGEMENT REPORTING STRUCTURE

Source: Hatten Land

FIGURE 10: COMPANY STRUCTURE

Source: Hatten Land

9


S I N G A P O R E

FIGURE 11: HATTEN CITY PHASE 1 FIGURE 12: PROJECT DETAILS

The mixed development, Hatten City Phase I, integrates four distinct projects, namely Elements Mall, SilverScape Residences, Hatten Suites and a tower block, which will be managed by Hilton Worldwide as part of its DoubleTree by Hilton brand.

Location: Bandar Hilir, Malacca, Malaysia, fronting the Malacca Straits

Land Size: Approximately six acres

Market Value : RM628.0m (as at 30 Jun 16)

Developer: Fuyuu Resources Sdn. Bhd.

Status as of 30 Jun 16: Completed

Source: Hatten Land

No. of Units

GFA Net Saleable Area (sf)

Percentage Sold* Completion Completion (sf) (%) (%) Date

Elements Mall 1,530 1,530,238 686,682 34 100 Nov 15 SilverScape Residences 745 820,188 591,638 85 100 Mar 16 Hatten Suites 589 240,616 165,132 93 100 Nov 15 DoubleTree by Hilton 277 283,521 N.A. N.A. 100 Mar 16 Total 3,141 2,874,563 1,443,452 70.7

* As at 30 Jun 16

FIGURE 13: HATTEN CITY PHASE 2 FIGURE 14: PROJECT DETAILS

Hatten City Phase 2 is a mixed development which comprises Imperio Mall and Imperio Residence. It utilises an iconic “cascading steps” design which functions as an outdoor jogging route with views of the coast and surrounding city. Imperio Residence will also feature 10 Cabana Villa units each of which will measure approximately 3,930 square feet across three (3) storeys along with two (2) private carparks, its own lift and pool. Imperio Mall and Imperio Residence will be connected to the rest of Hatten City via an air-conditioned link bridge.

Location : Jalan Syed Abdul Aziz, Bandar Hilir, Malacca, Malaysia, fronting the Malacca Straits

Land Size : Approximately four acres

Market Value : RM363. m (as at 30 Jun 16)

Developer : Fuyuu Ventures Sdn. Bhd.

Status as of 30 Jun 16: Under Development

Source: Hatten Land

No. of Units GFA Net Saleable Area

(sf) Percentage Sold* Completion Completion

(sf) (%) (%) Date

Imperio Mall 786 622,313 285,885 60 66 2H17 Imperio Residence 950 797,478 545,478 47 66 2H17 Total 1,736 1,419,791 831,363 53.5

Source: Hatten Land

10


S I N G A P O R E

FIGURE 15: HARBOUR CITY FIGURE 16: PROJECT DETAILS

Harbour City is a mixed development which will consist of Harbour City Mall, a water theme park and three hotel blocks. In incorporating elements of retail, hotels and the theme park, Harbour City aims to change Malacca’s tourism and entertainment landscape.

Location : Pulau Melaka fronting the Malacca Straits

Land Size : Approximately six acres


Developer : Gold Mart Sdn. Bhd.


Source: Hatten Land

No. of Units

GFA Net Saleable Area (sf)

Percentage Sold* Completion Completion (sf) (%) (%) Date

Harbour City Mall 1,831 1,766,847 1,033,914 15 9 2H19 Harbour City Suites 648 661,498 297,706 81 9 2H19 Harbour City Resort 637 586,771 407,545 24 9 1H20 Harbour City Luxury Hotel 325 322,959 233,055 N.A. 9 1H20 Total 3,441 3,338,075 1,972,220 40

* As at 30 Jun 16

FIGURE 17: VEDRO BY THE RIVER FIGURE 18: PROJECT DETAILS

Vedro by the River is a retail mall which aims to features an eclectic mix of tenants ranging from fashion house to retailers of novelty gadgets and chic accessories.

Location : Kee Ann Road, along Malacca River

Land Size : Approximately two acres


Developer : Fuyuu Group Sdn. Bhd.


Source: Hatten Land

Total Units

GFA Net Saleable Area Percentage Sold* Completion Completion (st) (sf) (%) (%) Date

Vedro by the River 736 213,547 95,504 65 65 1H17

* As at 30 Jun 16

11


S I N G A P O R E

FIGURE 19: MANAGEMENT

Source: Hatten Land

FIGURE 20: SELECTED DIRECTORS/PERSONNEL

Name Position Experience

Dato’ Colin Tan Executive Chairman and Managing Director

* Co-founder of parent company Hatten Group. Executive Chairman and managing director since the incorporation of Hatten Group in 2008. His responsibilities include sales and marketing, business growth and development, asset and land acquisitions, investment and growth strategies, governmental regulation and compliance, construction management, market research and analysis and brand management. Dato’ Colin graduated from the University of Dublin with a Bachelor of Science (Finance) in 2009.

Dato’ Edwin Tan Executive Director and Deputy Managing Director

* Co-founder of parent company Hatten Group. Executive director and deputy managing director since the incorporation of Hatten Group in 2008. His responsibilities include operations, human resources, development management hospitality strategy, planning and design, occupancy growth strategies, tenancy management and tenant relations, leasing and management strategy and facilities management. Dato’ Edwin graduated from the University of Dublin with a Bachelor of Science (Finance) in 2009.

Lee Sok Khian John Executive Director & Head of Corporate Finance

* Before joining Hatten Group in May 16, Mr Lee was CFO and company secretary of Koh Brothers Group in 2008-16. Previous appointments include being the managing director and subsequently the advisor (group finance) of Leeden Ltd (now known as Leeden National Oxygen), an industrial hardware distributor listed on the SGX-ST Mainboard from Jan 97 to Mar 05.

* Fellow of the Institute of Singapore Chartered Accountants.

Chua Thiam Siew, Johnson Group Financial Controller * Before joining Hatten Group in May 16, Mr Chua was Financial Controller of Koh Brothers Eco Engineering and in 2010-16 and finance manager of Koh Brothers Building & Civil Engineering. From 2000-10, he was at The Ascott Ltd (part of the CapitaLand Group), where he was regional general manager of North China and East China.

* Master of Business Administration from Southern Cross University and a Master of Accounting from Curtin University of Technology (Australia). He is an Associate Member of CPA Australia.

Chong Foh Siong Head of Development Management

* Prior to joining the Hatten Group in Apr 07, Mr Chong worked at two architectural firms, Akitek AAP from (1994- 2007) and Akitek KHP (1982-94) where he was responsible for coordinating projects, submissions of plans to various authorities for approval and ensuring that all works met regulatory guidelines

* Graduated from the Federal Institute of Technology (Institut Teknologi Federal) with a Technical Diploma in

Architecture in 1981.

Tan Kay Yan, Mark Head of Business Development

* Prior to joining the Hatten Group in May 15, Mark was with UE E&C Ltd (2010-15) where he held the position of general manager, strategy and risk. Before his transfer to UE E&C Ltd, Mark served in United Engineers Group (2004-10) in the area of corporate planning and coordination where he tracked and rationalised part of the regional portfolio of United Engineers Group

* Obtained an MBA from the Helsinki School of Economics in 2004. Also holds a Bachelor Degree of Engineering (Electrical), Hons, from NUS

Source: Hatten Land

12


S I N G A P O R E

Financials

We estimate Hatten Land’s net gearing to decline from 278% to 148-199% post listing. Hatten Land’s historical gearing is ostensibly high at 2.78x, mainly due to low book value before listing. Net gearing is expected to fall after listing and is projected to decline further on progressive recognition of unbilled sales.

The estimated locked-in sales of RM1.1b would provide earnings visibility to FY19. Forward ROE is projected at 20%, significantly higher than Singapore and Malaysia developers’ FY17 ROE range of 2-10%, due to Hatten’s asset-light model.

We also project a net loss of RM4m in FY17 due to one-off listing expenses. Stripping this out, core net profit is estimated at RM56m. We expect core net profit to grow at a CAGR of about 9% over the next two years to RM67m in FY19.

FIGURE 21: NET GEARING

263%278%

146%

177%199%

0%

50%

100%

150%

200%

250%

300%

FY15 FY16 FY17F FY18F FY19F

(Net Gearing)


FIGURE 22: NET PROFIT

26

68

-4

59

67

-10

0

10

20

30

40

50

60

70

80

FY15 FY16 FY17F FY18F FY19F

(RM m)


FIGURE 23: RETURN ON EQUITY


RM 56m in core net profit

Due to one-off reverse acquisition and RTO expenses

13


S I N G A P O R E

Industry

MALAYSIA – REVIEW AND OUTLOOK

The Malaysian government is targeting GDP growth of 5-6% p.a. from 2016 to 2020. Last November, Malaysia’s Prime Minister Najib Razak upgraded his government’s expectations for GDP expansion in 2017 to 4-5% (previously 4.0-4.5%).

The Malaysian economy grew by 5% in 2015, lower than the 6% in 2014. Throughout 2011-15, Malaysia’s GDP consistently grew at least 5%, except in 2013 due to a decline in activities in all but the agricultural sector. 2015 private domestic demand grew 6.1% yoy (2014: 7.9%) on slower growth in investments and private consumption, which faltered after Apr 15’s GST, in the wake of shifting household consumption patterns.

2015 also saw net exports slip 3.7% yoy, after the relatively blistering double-digit growth of 12.8% yoy clocked in 2014. Demand from the public sector saw higher growth of 2.1% in 2015, from 0.4% in 2014. Public consumption continued to underpin public sector demand as government spending on fixed assets fell.

In 2015, the construction sector propelled supply growth (+8.2% yoy) for the fourth consecutive year, followed in succession by the services and manufacturing sectors which registered respective growth of 5.1% yoy and 4.9% yoy. Nevertheless, at 54% of GDP, the services sector retained its lion share (at 54%) of GDP contribution (2010: 51%). This was followed by the manufacturing sector which accounted for 23% of the GDP in the last five years.

FIGURE 24: MALAYSIA GDP GROWTH AND UNEMPLOYMENT

Source: Department of Statistics Malaysia, Bank Negara Malaysia

FIGURE 25: MALAYSIA GDP BREAKDOWN


14


S I N G A P O R E

MALACCA – REVIEW AND OUTLOOK

Malacca’s GDP growth for 2015 is estimated at 4.5% (2014: 7.6%). The services sector comprised 46% of Malacca’s GDP in 2015 (2010: 44%), underpinned by wholesale, retail trade, accommodation and restaurants, and utilities, transport, storage and communication segments. In contrast, the manufacturing sector accounted for 40% of the state’s GDP in 2015, compared with the 42% in 2010.

FIGURE 26: GDP GROWTH IN MALAYSIA AND MALACCA


FIGURE 27: MALAYSIA AND MALACCA UNEMPLOYMENT RATE


FIGURE 28: MALACCA’S ECONOMIC INDICATORS

Source: Department of Statistics Malaysia, Bank Negara Malaysia, International Monetary Fund, Melaka Tourism Promotion Division

15


S I N G A P O R E

KEY GROWTH TURBINES IN MALACCA

Kuala Lumpur-Singapore high-speed rail (which has a stop at Ayer Keroh, Malacca). The 350 km high-speed rail will cost RM43b and is targeted to complete in 2020. This will allow visitors to travel from Singapore to Malacca in 50 minutes and from Malacca to Kuala Lumpur in 40 minutes.

FIGURE 29: POTENTIAL BENEFICIARY OF PROPOSED HIGH-SPEED RAIL STATION

Source: Hatten Land

Expansion of Malacca International Airport, coupled with weekly scheduled flights to and from Guangdong, China, to be operated by China Southern Airlines, may increase the number of Chinese investors and tourists in Malacca.

FIGURE 30: POTENTIAL LANDBANK SITUATED AROUND MELAKA GATEWAY

Source: Hatten Land

16


S I N G A P O R E

Planned RM40b Malacca Gateway in the Straits of Melaka could spur tourism and investment, in particular the construction of the deep sea port. This could lead to an increase in demand for developed properties.

a) The project is expected to open in 2018 and fully completed by 2025. Melaka Gateway is projected to generate additional 2.5m tourists over the next 12 years.

b) Malacca International Cruise Terminal, part of the Melaka Gateway project, is expected to reach completion in 2017. Some 250 cruise ships are targeted to dock at the terminal p.a. by 2020 and this will have a strong economic impact.

c) The deep sea port is estimated to cost RM8b and be completed by 2019.

RESIDENTIAL

Malacca’s residential property market. According to industry consultant Nawawi Tie Leung Property, Malacca’s residential market saw completions averaging over 2,000 units per year, representing a CAGR of 1.7% in supply in 2010-15. This placed 1Q16 total stock at 168,021 units in Malacca. Of this, condominium/apartments and serviced apartments made up merely 6%, equivalent to 10,405 units, according to NAPIC data. The bulk of supply (68%) could be attributed to landed developments (terrace, semi-detached, clusters and town houses). Malaysian owner-occupiers tend to prefer landed homes, according to the industry consultant. This is especially so for a state like Malacca, where demand is underpinned by domestic owner-occupiers who are partial towards landed properties.

While Hatten Group is a leading developer of serviced apartments in the Malacca city centre, other key players include Faithview Group and Yong Tai Bhd. According to Nawawi Tie Leung, investor appetite (foreign and local) in the property market has grown post the recognition of Malacca City as a UNESCO World Heritage Site in 2008. They opine this is evident from the sales performances of recent launches which have reportedly attracted buyers from Singapore, China and Indonesia. However, they also note that local buyers continue to dominate the market. We understand from Hatten Land’s management that Singaporeans comprise less than 20% of buyers in their projects.

FIGURE 31: SUPPLY OF RESIDENTIAL UNITS FIGURE 32: 1Q16 SUPPLY BREAKDOWN

Source: National Property Information Centre Source: National Property Information Centre

17


S I N G A P O R E

FIGURE 33: INCOMING SUPPLY OF SERVICED APARTMENTS

Source: National Property Information Centre

HOSPITALITY

Malacca’s tourism sector welcomed 15.7m tourists in 2015, up 4.7% yoy. Tourist receipts also increased 39.5% yoy to RM16.7m, the highest annual growth rate since 2010.

International tourists accounted for 28.4% of Malacca’s 15.7m arrivals (2014: 27.8%). According to the industry consultant, Malacca remained increasingly popular among foreign tourists, attracting 17% of the foreign tourists in Malaysia in 2015, compared with 15% in 2014. Malacca is a prominent destination for Chinese nationals in Malaysia, capturing 879,050 of the 1.67m Chinese tourists who visited Malaysia in 2015. The state will continue to attract a significant number of tourists from China with various Chinese-themed leisure developments such as Cheng Ho City and Impression Malacca. As of Sep 16, Malacca International Airport had a new direct route connecting the state to Guangdong, China, via chartered flights operated by China Southern Airlines.

In light of the above and upcoming major attractions and promotions, the state government is confident of attracting 8m Chinese tourists in five years’ time. This will have a positive impact on the retail and hotel sectors.

FIGURE 34: MALAYSIA AND MALACCA INTERNATIONAL TOURIST VISITORS

Source: Malacca Tourism Promotion Division

18


S I N G A P O R E

FIGURE 35: MALAYSIA AND MALACCA INTERNATIONAL TOURIST VISITORS


FIGURE 36: MALACCA’S TOP 5 INBOUND TOURIST ARRIVALS


FIGURE 37: MALACCA HOTEL PERFORMANCE

Source: NTL Research & Consulting, Melaka Tourism Promotion Division

FIGURE 38: SELECTED INCOMING HOTELS IN MELAKA

Source: NTL Research & Consulting, Melaka Tourism Promotion Division

19


S I N G A P O R E

RETAIL

Malaysia’s retail sales increased 1.4% yoy in 2015, the lowest annual growth since 2009. According to Nawawi Tie Leung, consumer sentiment was affected by the gloomy economic outlook, a weakening ringgit, job market volatility and the implementation of GST in Apr 15. Accordingly, the Consumer Sentiment Index (CSI) hit a record-low of 63.8 in 4Q15. The industry consultant also found the CSI hovering below its threshold confidence level of 100 for seven consecutive quarters.

FIGURE 39: CONSUMER SENTIMENT INDEX FIGURE 40: MALAYSIA ANNUAL RETAIL SALES

Source: Malaysian Institute of Economic Research Source: Retail Group Malaysia

FIGURE 41: SUPPLY AND OCCUPANCY OF RETAIL SPACE IN MELACCA

Source: National Property Information Centre

FIGURE 42: RETAIL LOT MONTHLY RENTALS

Source: National Property Information Centre, NTL Research

20


S I N G A P O R E

Risk Factors

No assurance that ROFR/call option for land acquisitions will be exercised. While Hatten Land has the right to exercise the call options to acquire over 17 land parcels (excluding the SPA/MOU land parcels), there is no guarantee it will do so. As Hatten does not presently have existing landbank, this might adversely impact its forward earnings upon complete recognition of existing development projects.

Bumiputera quota policy. The policy allows bumiputeras (local Malays) to own properties at discounted prices. As such, discounts ranging 5-15% will have to be offered on such units (both residential and commercial) set aside for the bumiputeras. The allocation quantum is set to vary from time to time. Also, bumiputera lots may be harder to sell as the market is strictly confined to bumiputeras (depending on the location of the properties). The inability to sell such bumiputera lots may adversely impact Hatten Land’s business, financial performance and operations.

Development risks. New project developments are subject to, among others,: a) market or site deterioration after acquisitions; b) potential discovery of previously undetected defects or problems at a site; and c) the possibility of construction delays or cost overruns due to various reasons such as delayed regulatory approvals, adverse weather, labour or material shortages, work stoppages, delay from land and site clearances and the unavailability of construction and/or long term financing.

Potential currency translation risk. Hatten Land’s reporting currency could be in Singapore dollar even though the group’s functional earnings are denominated in ringgit. As such, depreciation of the ringgit or strengthening of the Singapore dollar will affect the company’s reported earnings (assuming they are in Singapore dollars).

Rental obligations for units under sale-and-leaseback arrangements. Hatten Land enters into agreements to sub-let (to Hatten Group or third parties) hospitality and retail units to fulfil rental yield agreements signed by the company and purchasers. This opens up the possibility of default risk by the lessees (either the master lessee in relation to hospitality units or individual lessees in relation to retail units). Hatten Land will nevertheless have to continue fulfilling their obligations to the purchasers under the relevant tenancy agreements in such a scenario, which may result in cash flow deficit under the sale and leaseback arrangements.

Sale of shares by vendors. Following the expiry of the moratorium period (six months after completion), all shares owned by the vendors and/or their nominees will be eligible for sale in the open market, which could result in a share price decline.

Low trading liquidity, with the major shareholders retaining a majority 86% stake in the company.

Subject to local government jurisdiction. Most if not all of Hatten Land’s assets and operations will be located in Malaysia and subject to its jurisdiction. As a result, it may be difficult for investors to effect service of process, or enforce a judgment obtained in Singapore against Hatten Land. In particular, judgments of a Singapore court may not be enforceable in Malaysia or such other relevant foreign jurisdiction. It may also be difficult for investors to take legal action in a foreign jurisdiction and the costs of bringing such an action may be prohibitive.

21


S I N G A P O R E

PROFIT & LOSS

BALANCE SHEET

Year to 30 Jun (RMm) 2016 2017F 2018F 2019F Year to 30 Jun (RMm) 2016 2017F 2018F 2019F

Net turnover 412.4 598.8 639.8 668.8 Fixed assets 64.1 65.1 66.1 67.1

EBITDA 89.7 89.9 92.6 98.6 Other LT assets 51.3 38.1 42.8 44.1

Deprec. & amort. 4.5 4.8 5.0 5.3 Cash/ST investment 81.9 141.7 154.2 161.5

EBIT 85.1 85.1 87.6 93.3 Other current assets 736.0 1,011.6 1,229.6 1,630.1

Total other non-operating income 12.2 0.0 0.0 0.0 Total assets 933.3 1,256.5 1,492.7 1,902.7

Associate contributions 0.0 0.0 0.0 0.0 ST debt 51.9 61.9 61.9 61.9

Net interest income/(expense) (12.8) (19.6) (27.4) (35.6) Other current liabilities 448.9 483.4 503.8 684.5

Pre-tax profit 96.4 25.1 87.6 93.3 LT debt 198.6 351.6 514.6 687.6

Tax (27.9) (29.4) (28.9) (30.8) Other LT liabilities 173.3 173.3 173.3 173.3

Minorities 0.0 0.0 0.0 0.0 Shareholders' equity 60.6 186.3 239.1 295.4

Net profit 68.6 (4.3) 58.7 62.5 Minority interest 0.0 0.0 0.0 0.0

Net profit (adj.) 68.6 55.7 58.7 62.5 Total liabilities & equity 933.3 1,256.5 1,492.7 1,902.7

CASH FLOW Year to 30 Jun (RMm) 2016 2017F 2018F 2019F KEY METRICS Operating 26.7 (71.9) (112.3) (124.7) Year to 30 Jun (%) 2016 2017F 2018F 2019F

Pre-tax profit 96.4 25.1 87.6 93.3 Profitability

Tax (17.5) (29.4) (28.9) (30.8) EBITDA margin 21.7 15.0 14.5 14.7

Deprec. & amort. 4.5 4.8 5.0 5.3 Pre-tax margin 23.4 4.2 13.7 14.0

Associates 0.0 0.0 0.0 0.0 Net margin 16.6 (0.7) 9.2 9.3

Working capital changes (54.9) (132.4) (176.0) (192.4) ROA 7.2 (0.4) 4.3 3.7

Non-cash items 0.0 60.0 0.0 0.0 ROE 113.1 29.9 24.5 21.2

Other operating cashflows (2.1) (0.4) (0.4) (0.5) Investing (29.0) (31.3) (32.4) (34.8) Growth

Capex (growth) (36.3) (38.1) (40.0) (42.0) Turnover (5.5) 45.2 6.8 4.5

Investments 0.0 0.0 0.0 0.0 EBITDA 154.2 0.2 3.1 6.4

Proceeds from sale of assets 7.2 6.8 7.6 7.2 Pre-tax profit 160.3 (74.0) 249.0 6.5

Others 0.0 0.0 0.0 0.0 Net profit 166.1 n.a. n.a. 6.5

Financing 60.2 163.0 157.1 166.7 Net profit (adj.) 166.1 (18.7) 5.3 6.5

Issue of shares 0.0 0.0 0.0 0.0 EPS 25.4 65.6 27.8 (6.0)

Proceeds from borrowings 111.7 163.0 163.0 173.0

Loan repayment 0.0 0.0 0.0 0.0 Leverage

Others/interest paid (51.5) 0.0 (5.9) (6.3) Debt to total capital 4.1 2.2 2.4 2.5

Net cash inflow (outflow) 57.8 59.8 12.4 7.3 Debt to equity 4.1 2.2 2.4 2.5

Beginning cash & cash equivalent

24.1 81.9 141.7 154.2 Net debt/(cash) to equity 2.8 1.5 1.8 2.0

Ending cash & cash equivalent 81.9 141.7 154.2 161.5 Interest cover (x) 7.0 4.6 3.4 2.8

22


S I N G A P O R E

Disclosures/Disclaimers This report is prepared by UOB Kay Hian Private Limited (“UOBKH”), which is a holder of a capital markets services licence and an exempt financial adviser in Singapore. This report is provided for information only and is not an offer or a solicitation to deal in securities or to enter into any legal relations, nor an advice or a recommendation with respect to such securities. This report is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient hereof. Advice should be sought from a financial adviser regarding the suitability of the investment product, taking into account the specific investment objectives, financial situation or particular needs of any person in receipt of the recommendation, before the person makes a commitment to purchase the investment product. This report is confidential. This report may not be published, circulated, reproduced or distributed in whole or in part by any recipient of this report to any other person without the prior written consent of UOBKH. This report is not directed to or intended for distribution to or use by any person or any entity who is a citizen or resident of or located in any locality, state, country or any other jurisdiction as UOBKH may determine in its absolute discretion, where the distribution, publication, availability or use of this report would be contrary to applicable law or would subject UOBKH and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registration, licensing or other requirements within such jurisdiction. The information or views in the report (“Information”) has been obtained or derived from sources believed by UOBKH to be reliable. However, UOBKH makes no representation as to the accuracy or completeness of such sources or the Information and UOBKH accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Information. UOBKH and its connected persons may have issued other reports expressing views different from the Information and all views expressed in all reports of UOBKH and its connected persons are subject to change without notice. UOBKH reserves the right to act upon or use the Information at any time, including before its publication herein. Except as otherwise indicated below, (1) UOBKH, its connected persons and its officers, employees and representatives may, to the extent permitted by law, transact with, perform or provide broking, underwriting, corporate finance-related or other services for or solicit business from, the subject corporation(s) referred to in this report; (2) UOBKH, its connected persons and its officers, employees and representatives may also, to the extent permitted by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securities referred to in this report or other investments related thereto; (3) the officers, employees and representatives of UOBKH may also serve on the board of directors or in trustee positions with the subject corporation(s) referred to in this report. (All of the foregoing is hereafter referred to as the “Subject Business”); and (4) UOBKH may otherwise have an interest (including a proprietary interest) in the subject corporation(s) referred to in this report. As of the date of this report, no analyst responsible for any of the content in this report has any proprietary position or material interest in the securities of the corporation(s) which are referred to in the content they respectively author or are otherwise responsible for. IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by UOBKH, a company authorized, as noted above, to engage in securities activities in Singapore. UOBKH is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution by UOBKH (whether directly or through its US registered broker dealer affiliate named below) to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). All US persons that receive this document by way of distribution from or which they regard as being from UOBKH by their acceptance thereof represent and agree that they are a major institutional investor and understand the risks involved in executing transactions in securities. Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through UOB Kay Hian (U.S.) Inc (“UOBKHUS”), a registered broker-dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through UOBKH. UOBKHUS accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to and intended to be received by a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of UOBKHUS and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.

23


S I N G A P O R E

Analyst Certification/Regulation AC Each research analyst of UOBKH who produced this report hereby certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corporation(s) and securities in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of UOBKH or any other person, any of the Subject Business involving any of the subject corporation(s) or securities referred to in this report; and (4) he/she has not received and will not receive any compensation that is directly or indirectly related or linked to the recommendations or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transaction in respect of the securities in this report. However, the compensation received by each such research analyst is based upon various factors, including UOBKH’s total revenues, a portion of which are generated from UOBKH’s business of dealing in securities. Reports are distributed in the respective countries by the respective entities and are subject to the additional restrictions listed in the following table. General This report is not intended for distribution, publication to or use by any person or entity who is a citizen or resident of or

located in any country or jurisdiction where the distribution, publication or use of this report would be contrary to applicable law or regulation.

Hong Kong This report is distributed in Hong Kong by UOB Kay Hian (Hong Kong) Limited ("UOBKHHK"), which is regulated by the Securities and Futures Commission of Hong Kong. Neither the analyst(s) preparing this report nor his associate, has trading and financial interest and relevant relationship specified under Para. 16.4 of Code of Conduct in the listed corporation covered in this report. UOBKHHK does not have financial interests and business relationship specified under Para. 16.5 of Code of Conduct with the listed corporation covered in this report. Where the report is distributed in Hong Kong and contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact UOBKHHK (and not the relevant foreign research house) in Hong Kong in respect of any matters arising from, or in connection with, the analysis or report; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Hong Kong who is not a professional investor, or institutional investor, UOBKHHK accepts legal responsibility for the contents of the analyses or reports only to the extent required by law.

Indonesia This report is distributed in Indonesia by PT UOB Kay Hian Securities, which is regulated by Financial Services Authority of Indonesia (OJK). Where the report is distributed in Indonesia and contains research analyses or reports from a foreign research house, please note recipients of the analyses or reports are to contact PT UOBKH (and not the relevant foreign research house) in Indonesia in respect of any matters arising from, or in connection with, the analysis or report.

Malaysia Where the report is distributed in Malaysia and contains research analyses or reports from a foreign research house, the recipients of the analyses or reports are to contact UOBKHM (and not the relevant foreign research house) in Malaysia, at +603-21471988, in respect of any matters arising from, or in connection with, the analysis or report as UOBKHM is the registered person under CMSA to distribute any research analyses in Malaysia.

Singapore This report is distributed in Singapore by UOB Kay Hian Private Limited ("UOBKH"), which is a holder of a capital markets services licence and an exempt financial adviser regulated by the Monetary Authority of Singapore.Where the report is distributed in Singapore and contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact UOBKH (and not the relevant foreign research house) in Singapore in respect of any matters arising from, or in connection with, the analysis or report; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, UOBKH accepts legal responsibility for the contents of the analyses or reports only to the extent required by law.

Thailand This report is distributed in Thailand by UOB Kay Hian Securities (Thailand) Public Company Limited, which is regulated by the Securities and Exchange Commission of Thailand.

United Kingdom

This report is being distributed in the UK by UOB Kay Hian (U.K.) Limited, which is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

United States of America (‘U.S.’)

This report cannot be distributed into the U.S. or to any U.S. person or entity except in compliance with applicable U.S. laws and regulations. It is being distributed in the U.S. by UOB Kay Hian (US) Inc, which accepts responsibility for its contents. Any U.S. person or entity receiving this report and wishing to effect transactions in any securities referred to in the report should contact UOB Kay Hian (US) Inc. directly.

Copyright 2017, UOB Kay Hian Pte Ltd. All rights reserved. http://research.uobkayhian.com RCB Regn. No. 197000447W

Documents

MONEY TALK HATTEN LAND (HATT SP) (Initiate Coverage)hattenland.listedcompany.com/misc/UOBKayHian_HattenLand_14March2017.pdfHarbour City Harbour City Mall 1831 1,766,847 1,033,914 15