SINGAPORE (June 29): SAC Capital has started Hong Lai Huat Group at “buy” given expectations of a strong recovery in 2018 and 2019 as it recognises higher sales from D’Seaview.

The stock -- more popularly known as HLH Group -- is also trading at 0.9 times FY19 earnings and 0.28 times FY17 book versus average of 0.9 times.

“We value HLH at 51 cents per share after applying a 40% discount to its RNAV. This translates to an implied FY18 P/BV of 0.8 times,” says analyst Eing Kar Mei in a Friday report.

HLH is developing its first mixed development project, the D’Seaview, in Sihanoukville, Cambodia. A popular tourist destination with several seaside resorts and casinos, Sihanoukville also has the biggest Special Economic Zone (SEZ) and the only deep seaport in the country.

The government is committed to improve the infrastructure in this region, as the city is strategically located to benefit from China’s One-Belt-One-Road initiative. A new highway will also be built to connect Phnom Penh and Sihanoukville.

Eing said D’Seaview is 70% sold since HLH extended its launch to Singapore buyers last year. 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 02015 when the land was acquired, as international developers snapped up landbank over the last three years,” says Eing, adding that HLH has another parcel of land of 22,064 sqm or twice the size of D’Seaview.

In 2013, HLH ventured into Cambodia when Singapore’s property market softened. 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,” says Eing.

HLH owns one of the largest private cassava plantations in Cambodia. It plans to plant up to 85% of the 10,000ha land with fresh cassava by end 2018. It also produces native potato starch inn tis 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.

“We believe this will help to lift income from cassava business, which is now breaking even,” adds the analyst who has a 51 cents target price.

As at 12.20pm, shares in HLH are trading at 16 cents or 1.1 times FY19 estimated earnings.

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