30 JEWELS 2013 Edition
Affordability Still The Way To Go
•Mid-cap property developer concentrating on the affordable housing segment (≤ MYR500k)
•Strong growth potential ahead given its total outstanding GDV of MYR3.77bn, including MYR1bn planned for FY14 launches
•Major launches lined up include high-rise projects in Desa Pandan (total GDV: MYR213m) and Shah Alam (GDV: MYR156m)
•Value Hua Yang at MYR3.68, based on a 20% discount to RNAV; TP post 1-for-3 bonus issue is adjusted to MYR2.76
Hua Yang is a mid-cap property developer, with a niche in the affordable housing segment. Its landbank is strategically located in property hotspots such as the Klang Valley, Johor and Perak. It currently has an outstanding total gross development value (GDV) of about MYR4.12bn in its portfolio, including MYR1bn for planned FY14 launches.
Targeting local first-time home-buyers. The local first-time home buyers, especially those between 25 and 40 years old, are Hua Yang’s key target market for its projects. Currently, 60% of the Group’s buyers are within this age group. Going forward, it will continue to concentrate on developing houses mainly within the MYR400k-MYR500k price range. As such, Hua Yang’s market position in this segment is wellentrenched.
Attractive new launches in FY14. Hua Yang is set for a good year ahead, given several new project launches and total unbilled sales of MYR530m, which are expected to drive FY14 earnings. About MYR690m, or 64.5% of its total GDV due for launch in FY14, will be from its new projects. These include the highly anticipated Desa Pandan and Shah Alam high-rise projects in Kuala Lumpur and Selangor, respectively. Other notable launches in FY14 will be its new township in Johor Bahru, with total GDV of about MYR208m. There were minimal launches in 1QFY14, mainly due to the uncertainties leading up to the 13th general election. Therefore, these few new projects/phases are slated for launch only from end-2QFY14 onwards (after the Hari Raya festivities). Among the major launches lined up for 2QFY14 will be the Shah Alam high-rise project (total GDV:MYR156m), which has already received good presales response. Management believes that despite the lack of activity in 1QFY14, Hua Yang is still on track to achieve its FY14 new sales target of MYR600m
(vs FY13’s MYR401.5m). Management has also guided for a doubledigit net profit growth for FY14, in line with the 33% y-o-y net profit growth recorded in FY13.
Bonus issue announced. Hua Yang recently rewarded its shareholders again by proposing a 1-for-3 bonus issue, which will enlarge its share base to 264m shares (from 198m currently). We view this corporate exercise positively, as the enlarged share base will help improve the stock’s liquidity. To sustain longer-term growth, Management could be considering a possible cash call to part-fund its expansion plans, particularly for the acquisition of a sizeable landbank.
Company Report Card
Latest results. Hua Yang has recently announced its 1QFY14 results. PBT was 27% y-o-y lower, largely due to slower progress billings and minimum launches recognition in 1QFY14. We do, however, expect earnings to pick up in later quarters, as more projects will be rolled out later in the year.
Balance sheet / Cashflow. The Group’s balance sheet, as at 1QFY14, remained healthy, although net gearing has increased to 0.49x (4QFY13: 0.26x), due to higher borrowings incurred from the acquisition of a new land in Puchong. Nonetheless, we believe that this is still manageable, given that it has not breached Management’s internal gearing target of 0.6x.
ROE. We expect ROE to be higher in FY14, underpinned by its MYR1bn worth of launches and unbilled sales.
Dividend. Although Hua Yang does not have a fixed dividend payout ratio, Management indicated that it will resume a payout ratio of 25%- 30% of its income, as per its historical practice.
Management. Hua Yang’s Management is spearheaded by Mr Ho Wen Yan, who has been with the company for nearly 10 years. Mr Ho is an architect by training and started off in Hua Yang as a project coordinator at its Johor branch before moving up the ranks. He was eventually appointed Group CEO in Aug 2010.
We value Hua Yang at MYR3.68, based on a 20% discount to RNAV. Our indicative target price ex-bonus issue will be adjusted to MYR2.76. The Group’s double-digit earnings growth over the next one to two years will be sustainable, given the type of projects that are scheduled for release, as well as the strategic location of its Puchong land. Despite the strong re-rating earlier, Hua Yang’s valuations are still undemanding at 6.5x FY14F P/E, given its positive earnings prospects. We also expect the demand for affordable housing to remain firm going forward.