Duna House - Finally, Turnaround In Poland!

Duna House -  Instant Earnings Comment

Recommendation:  Accumulate

Target price (12M): HUF 4,500

 

 

In short: Duna House cleaned Q2 EBIT arrived to HUF 326 million (+32% y-o-y) thanks to the extremely strong loan intermediation segment (+35% y-o-y) and the turnaround in Poland. Reported profit declined by 36% y-o-y due to the time mismatch in the completion of development projects (booked large completions in last year Q2). Management confirmed its FY core profit guidance, of which ca.44% has been reached so far. There is only one negative point in the report, the potential delays in the project completions due to labour shortage.

 

DH started to report “clean core EBIT” which is adjusted by non-recurring (gain on disposals, penalties) and non-cash items (asset revaluation gains), in order to better see the underlying trends of the company’s financials and the sector.

 

Financials: Q2 Profit declined by 36% because of the time mismatch in project completions, but cleaned core EBIT that showed a +32% y-o-y increase which is a more important financial figure, in our view. The increase was attributable to (I) jump in the loan intermediation (+35% y-o-y); and (II) the positive contribution from Poland – last year Q2 was  - HUF 10 million vs +HUF 26 million in 2019.

 

In a segment breakdown on EBIT level, as mentioned the main contributor was the loan intermediation segment (+35%), but Franchise grew significantly in a relative terms (+35%) as well, thanks to the new office openings (+5% y-o-y) and increase in house prices. Surprisingly, own office segments EBIT plunged to 0 in Q2, because of lower revenue and increase in cost (affected by the lower transaction numbers in Budapest). Other related services was essentially flat on a yearly comparison.

 

Segment breakdown on EBIT level.

	Q2 2019	Q2 2018	Ch (%)
EBIT	399	623	-36%
Franchise	93	69	35%
Own Offices	0	26	-100%
Loan intermediation	189	140	35%
Other related	39	40	-4%
Real estate mgmt.	94	357	-74%
Elimination	-17	-8	106%

 

Source: DH, Concorde

 

On the country breakdown, Polish operation finally turned to positive in this quarter fuelled by the synergies of Gold finance and the organic growth. In this quarter polish operation added HUF 26 million EBIT, while in cumulative terms it is still HUF -30 million. So Metrohouse should make ca. HUF 100 million EBIT in the second half of the year to meet management guidance of HUF 75 million.

 

Monthly transaction number according to DH’s estimation

Source: Company reports

 

Cumulative transaction number is down by 4% compared to last year. We see a few reasons for the phenomena, one is what we had flagged side-effect of the very attractive retail bond of MAP+ that provides ca. 5% avg. yield which could be a substitution of real estate purchase, second is also related to the government’s new policy which is the additional family subsidy scheme eligible from 1 July that may have prompted buyers to postpone their purchase to receive the government’s help.

Developments: Management cautioned that there could be delays in the completions of the projects given the shortage of labour. Apart from that, 71% of Forest Hill project’s flat has already been sold and the completions may start from July. The other project which should contribute to the bottom-line -  My City Residence’s should be completed by the end of October. For this project ca. 77% of the flats have been sold.

 

Opinion:  All in all, we see strong set of numbers from DH if we focus on the core operation. The positive contribution in Poland is definitely the best part of the report, though to meet management FY profit guidance we should see further improvement from that segment as H1 EBIT reached HUF -30 million and the guidance is HUF 75 million (Q2 EBIT HUF 26 million). On the development projects, we may see similar delays than last year, when DH did not managed to book the completion of the project in Q4, which is a bit negative. In light of the generally positive trends, we reiterate our TP and recommendation.

Quarterly P&L

Source: company reports

 

 

Gellert Gaál
Senior Equity Analyst

CONCORDE SECURITIES LTD.

HILLSIDE
55 - 61 Alkotás street, H-1123 Budapest.
Phone:
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MEMBER OF THE CONCORDE GROUP

 

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