Hafary

Hafary: 1HFY14 net profit dived 81% to $4.5m on the absence of one-time gains on sale of development property ($23.8m), disposal of motor vehicle ($0.1m) and foreign currency adjustment gains ($0.1m). Excluding the one-offs, core operating profit would have declined 25% to $5.1m. Revenue climbed 15% to $48.9m primarily from a 26% acceleration in its project segment (whose customers include architecture firms, property developers and construction companies) to $22.8m, driven by the higher volume of surfacing materials for use in HDB residential projects, which includes Hedges Park @ Flora Drive and Parkland Residences. The top line was supported by the stable growth from its general segment (whose customers include home-owners, architecture, interior design and renovation firms) of 5.8% to $25.7m, which is closely correlated to the volume of residential unit resale transactions. Subsequently, gross margin lowered 3ppts to 38.6% from the change in sales mix towards project sales. With the series of property cooling measures in 2013, HDB resale applications slid 28% to 18,100 which translated to lower growth in the general sales segment in 1H14 compared to the previous year. As we hypothesize that 2014 should see similar phenomena, Hafary's overall margins may have recorded its cyclical peak in 2012/13. At $0.19, the largest tile supplier trades at 9.1x 1HFY14 annualized P/E and 2.1x P/B, compared to loss-making peer NH Ceramics' 1.7x P/B.