Duna House - Defying Gravity

Defying gravity

In short:

• Despite the skyrocketing interest rates, DH had its best quarterly results with the help of the Italian subsidiary. Q2 EPS reached HUF 24.4 (+224% yoy), H1 EPS was HUF 38.7 (+148% yoy).

 

• Thanks to the strong performance, DHG confirmed its FY core profit guidance (excludes profit from developments) of EPS 54 – 94 implying a P/E'22 of 6.4x on core earnings.

 

• DH started to book the profit from the development segment, but it was relatively low in size (HUF 86m in EBITDA only) and mgmt. expects ca HUF 4.7 bn CF from the project. The project loan has already been paid back.

 

• All in all, despite the strong headwind from soaring interest rates, DH surprised us with such resilient earnings thanks to its diversified operation. Going forward, we think the company’s earnings will heavily rely on the Italian operation and the huge profit from the Forest Hill project. However, those earnings buffers are not sustainable (market share increase in Italy) and the number of flats in the Forest Hill project are also finite. Since investors expect relatively large DPS (HUF 50 – 100) from this year’s profit, we do not expect share price would react meaningfully to the deteriorating macro environment. DH desperately needs lower interest rate environment for loan intermediation to run at a healthy pace, because at prevailing mortgage rates, there are relatively low demand for mortgage loans. They could not defy gravity forever, we believe.