Broker's take: SAC initiates coverage on Hong Lai Huat with 'buy', citing turnaround story

SAC Advisors on Friday initiated coverage on Hong Lai Huat Group (HLH) with a "buy" rating and a target price of S$0.51, some 200 per cent above its last closing price of S$0.163 on Thursday.

The brokerage cited the company's strong turnaround in the making, and the exposure that it offers to "booming" Sihanoukville in Cambodia.

It noted that HLH is developing the first mixed-development project, the D'Seaview, in Sihanoukville, a "burgeoning" investment location which is also a popular tourist destination with seaside resorts and casinos, the biggest Special Economic Zone and the only deep seaport in the country.

D'Seaview has achieved good take-up of above 70 per cent since HLH extended its launch to Singapore buyers in 2017, said the brokerage.

Ir added: "As an early mover in this type of development in the city, it is a price leader which translates into good margins. We understand that land prices in Sihanoukville have skyrocketed since 2015 when the land was acquired, as international developers snapped up landbank over the last three years. HLH has another parcel of land of 22,064 sq metres - more than twice the size of D'Seaview."

HLH also has an established track record in property development in Singapore. It ventured into Cambodia when Singapore property market softened in 2013.

"With the recent uptick in property demand in Singapore, it is scouting for development sites again. We believe it could launch a project as early as 2019," said SAC Advisors.

HLH also owns one of the largest private cassava plantations in Cambodia. It plans to plant up to 85 per cent of the 10,000-hectare land with fresh cassava by end-2018. It also produces native tapioca starch in its factory located on the farm. The group is looking to form a joint cooperation with an established player in the industry to grow the business by moving into upstream or downstream production.

SAC Advisors said: "We believe this will help to lift income from (the) cassava business, which is now breaking even. We are forecasting HLH to post a strong recovery in 2018 and 2019 as it recognises higher sales from D'Seaview."

The stock is trading at 0.9 times its FY19 price-to-earnings ratio, and 0.28 times its FY17 price-to-book-value, which is more attractive than the sector average of 0.9 times.