Hua Yang Berhad -
Target Price: RM2.91
Affordable Housing Advantage
HUAYANG held a briefing yesterday which reaffirmed our positive view based on these factors: (i) stronger billings in 2H14, which will be driven mainly by projects that are near to completion such as Parc@OneSouth, and (ii) immediate billings upon SPA for some of its upcoming projects as the substructure works are already underway. We believe our RM620.0m sales target for FY14E is achievable, buoyed by more than RM1.0b launches in the pipeline for the year and current unbilled sales of RM559m. Maintained TP of RM2.91, while maintaining our stance that it should be on parity with our DCF-driven RNAV.
Re-emphasizing targets will be met. Given the two consecutive quarters of underperformance, the management re-emphasized that their plans remain intact to achieve revenue and sales targets of c.RM0.5b and RM0.6b for FY14, respectively. In our earlier report dated 19 July, we mentioned that 2Q14 was expected to see QoQ improvements and true enough revenue improved 25.8% QoQ. Nevertheless, PBT was pretty flat with 0.3% QoQ growth. Management also guided that 2H14 will come in stronger on the back of stronger unbilled sales of RM559m and more than RM1b worth of launches in FY14. YTD, the company has launched RM288m worth of ongoing projects such as Taman Pulai Indah, Taman Pulai Hijauan and Bandar Universiti Seri Iskandar and soft launched Phase 5 of OneSouth, Sentrio Suites and Metia Residence worth RM463m, with promising bookings. Moreover, the company has already commenced piling and substructure works for Sentrio Suites and Metia Residences. Hence, this would mean immediate billings of c.20% when they rake-in SPA sales from these projects by year-end. Meanwhile, there are RM328m worth of new project launches lining up from now onwards to 1QCY14.
FY14E sales intact. Total RM1.0b GDV worth of projects will be launched this year which includes six new projects with total GDV of RM690m (e.g. Sentrio Suites, Metia Residences, The Gardens@Polo Park, Jalan Abdul Samad@Johor, Ridgewood@Bercham Permai and Anjung Bercham Megah, Perak). The breakdown between Klang Valley and other regions will be 43:57. Assuming a conservative takeup rate of 70% on the RM1.0b GDV, we believe our sales projections for FY14E of RM613m (+52% YoY) are realistic. However, we revised down our GP margin for FY14E by 1ppt to 32% due to higher construction cost resulting from labour shortage. Management highlighted their intention to maintain GP above 30% and believed that the labour cost issue would be moderate after completion of public infrastructure, typically the biggest component of any project.
HUAYANG continues to be one of our favourite property developers as it is one of the few to focus on the affordable housing market which will enjoy resilient demand for years to come. We also believe that it will not be impacted by the recent Budget 2014 property cooling measures as HUAYANG does not have any exposure to DIBS. We reckon the pool of mass home buyers will continue to grow prior to GST implementation as affordability becomes an overbearing issue.
Maintain earnings estimates for FY14E and FY15E of RM77m and RM112m respectively. We believe the estimates for FY14E is achievable supported by: (i) stronger billings in 2H14, which will be driven mainly by projects that are near to completion such as Parc@OneSouth, (ii) substructure works are underway for some of the upcoming new project launches, which mean billings will be immediate upon SPA sales.
Reiterate OUTPERFORM with unchanged TP of RM2.91. We maintain our stance that its TP should be on parity with its DCF-driven RNAV @ 10% WACC as we believe its ability to capitalise on its landbanks will become imminent as property prices continue to trend upwards coupled with the growing need for mass housings.
Publish date: 29/10/13