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Tuesday, January 28, 2014

Hua Yang Bhd - Counting on Affordability

Source: http://klse.i3investor.com/blogs/kenangaresearch/45566.jsp

We came out from HUAYANG analysts’ briefing yesterday feeling more reassured on its prospect in the affordable housing segment which is expected to remain strong. We believe our FY14 and FY15 sales estimates are achievable at RM0.62b and RM0.77b, respectively. Investors can expect higher billings in 4Q13, as Parc @ One South had been completed and ready for handover while its unbilled sales is at a high of RM838m. However, our earnings estimates for FY14 and FY15 are lowered by 1%-8%, respectively, as we push back the recognition for its newly launched projects to adjust for the timing differences. Subsequently, we raised our dividend from 8.8 sen to 11 sen as we were guided that the group would be comfortable with a higher payout ratio. Maintain OP with an unchanged TP of RM2.33. At current levels, dividend yields are attractive at 6.2% and 7.5% for FY14E and FY15E, respectively.

Encouraging sales. Year-to-date, HUAYANG’s performance has been highly encouraging as they managed to rake in property sales of RM0.58b, closing on to its full-year sales target of RM0.60b. Upcoming launches will be from Johor, namely (i) The Gardens @ Polo Park (GDV: RM54m) featuring a small enclave of semi-detached residentials and (ii) Citiwoods @ Jalan Abdul Samad (GDV: RM208m) which are affordable high-rise residentials. Its Puchong and Seri Kembangan projects (affordable housing) will likely be launched at end FY15.

Net gearing still manageable. HUAYANG’s net gearing had hit a new high of 0.7x, due to new land acquisitions in Puchong and Seri Kembangan, which are affordable housing projects. Management indicated that there would not be any more land banking in the near-term and would be expecting its net gearing to come down to a comfortable level of 0.6x following the handover of Parc @ One South project in 4Q14 and also higher billings recognition from Gardenz @ One South and Flexis @ One South which has reached completion stages of c.40% and c.30%, respectively. It is comforting to note that the company will not be embarking on any new land banking, as its net gearing has hit our maximum comfort level. Additionally, the group has sufficient GDV of c.RM4b (including ongoing projects) to sustain their growth for the next 3-4 years.

Lowered earnings on timing difference. FY14E and FY15E earnings have been lowered by 1% and 8%. We maintain our FY14 and FY15 sales assumptions of RM0.62b and RM0.77b. However, the timing of project launches (e.g. Greenz, Metia, and Sentrio) were later than expected. Meanwhile, its Sentrio project will take longer than the typical 36 months recognition period as HUAYANG managed to get a six months extension to 42 months for the particular project. As a result, we have pushed back, as well as, stretching out recognition for this project.

Maintaining a healthy dividend payout. Positively, we were guided that the group will be able to give a higher payout, as the management aims to maintain a healthy level of payout to reward its shareholders. Hence, we have increased our payout ratio from 30% to 38% which increases our NDPS to 11.0 sen (6.2% yield) from 8.8 sen. To date, for 9M14, the group has paid out 5.0 sen, implying 4Q14 dividend of 6.0 sen.

OUTPERFORM maintained. We are reiterating our OUTPERFORM recommendation on HUAYANG with an unchanged TP of RM2.33 which is at a 20% discount to its DCF-driven RNAV @ 10% WACC as we believe that HUAYANG is well positioned for the affordable housing market which will continue to enjoy resilient demand for years to come. At current levels, dividend yields are attractive at 6.2% and 7.5% for FY14E and FY15E.

Source: Kenanga

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