Hunza ... Aug10

♦ Bringing forward Alila II. As the approval and agreement process with the state government were smoother than expected, Hunza is looking to bring forward the launch of Alila II to end 2010 (from 3Q2011 previously). The project, which is located at Tanjung Bungah Penang, is worth a GDV
of RM300m. It comprises 260 high-end condo units. Given the positive response received for Alila I (fully sold previously), and Infinity (with a take-up rate of 87% as at Jun 2010), we expect demand for Alila II to be similarly strong. Hunza is likely to step up its Alila II’s selling price to around RM650psf or higher, considering the rising selling price for
Infinity, ranging from RM500psf to RM650psf in the secondary market. Gross margin is hence expected to be higher than Infinity’s 40%.

♦ Low-cost component for Bayan Baru land to start end 2011. To recap, Hunza entered into a SPA to acquire a piece of 17-ha freehold land in Bayan Baru, Penang for RM82.1m cash (or RM45 psf) end-Dec 09. As part of the effort to relocate squatters, management is hopeful to fast track its
approval process with authorities, to kick start its low-cost component to accommodate most of the squatters by end 2011. A total of RM50m has been allocated as relocation cost. The remaining project will comprise medical centre, performance hall, hotel, service apartments etc. If the project
can be kicked off earlier than expected, it will give upside to our earnings forecast for FY13, as we have yet to factor in the earnings contribution from this project.

♦ Reducing unsold stocks. USM (Universiti Sains Malaysia) is currently in talks with Hunza to rent 45 units of its unsold shop offices in Bandar Putra Bertam, Prai, due to insufficient space in the university. If successful, Hunza will not only be able to reduce its unsold inventory, it can also receive rental income, which would amount to RM5m per year for a period of 10 years.

♦ Forecast. As the launch of Alila II is earlier than expected, and to incorporate the contribution of rental income, we revise up our FY11-13 earnings forecasts by 5.7-32.5%.

♦ Risks. The risks include: 1) slowdown in take-up rate due to potential negative perception on Gurney Paragon after the stop-work incident; 2) competition from other developers in Penang; and 3) delays in launches and approvals.

♦ Investment case. No change in our RNAV estimates, and likewise our fair value of RM1.58, based on 50% discount to RNAV. Maintain Buy.