Saturday, July 20, 2013

Hua Yang Berhad - Liquidity to improve via 1:3 bonus

Hua Yang Berhad -
Price Target:3.52
Last Price:3.10
Liquidity to improve via 1:3 bonus

Period     1Q14

Actual vs. Expectations   1Q14 net profit of RM12.3m is seen as broadly in line with expectations, although it only makes up 14% of street and our FY14E earnings estimates. 1Qs are typically weak seasons while billings from new launches back in 4Q13 are still at initial construction stages, hence yet to see meaningful revenue recognition. The group rake in sales of RM89.1m (+6% YoY) in 1Q14 from its on-going projects.

Dividends    None, as expected.

Key Results Highlights   QoQ, 1Q14 revenue declined 21.4% while pretax profit dipping 24.2% to RM17.6m. The quarter saw pretax margin compression by 2.0ppt to 20.7% due to disproportionately higher billings from their mass housing township in Johor, Taman Pulai Indah, which tend to carry lower margins compared to projects like Bandar Universiti Seri Iskandar and OneSouth.

YoY, 1Q14 revenue and earnings were lower by 17.8% and 19.1%, respectively, on account of the same reasons stated above.

Outlook    Concurrent with the results, HUAYANG also proposed a  1-for-3 bonus issue, which is a positive surprise as it rewards shareholders and improves liquidity.

We gather that the company will have new launches worth more than RM1b in FY14, which comprises about RM690m new projects such as Shah Alam, Polo Park@Johor, Jalan Abdul Samad@Johor, Desa Pandan and etc. With GE out of the way, we expect the group to launch aggressively and hence, we maintain our sales estimates of RM613m.

Change to Forecasts   No changes to FY14-15E earnings as we expect earnings to play catch-up when the new launches kick-in as unbilled sales have increased by 9% YoY to RM530m providing one year earnings visibility.

Rating  Maintain OUTPERFORM

We continue to like affordable housing developers. Note that HUAYANG does not employ any DIBS scheme on its projects. We also believe that the new maximum mortgage tenure of 35 years will not be a major deterrent to demand as lending rates remain at a record low while the mass housing market will continue to cater to a wider segment of society, including young upgraders and parents buying homes for their children

Valuation     Maintaining our TP at RM3.52 (ex-bonus RM2.64), which is on parity with our DCF-driven RNAV @ 10% WACC.

Risks    Unable to meet sales targets or replenish landbank.

Sector risks, including negative policies.

Source: Kenanga

Publish date: 18/08/13

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