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Thursday, July 11, 2013

Hot Stock - Hua Yang Berhad


Background: Hua Yang Bhd (HYB) is a leading affordable housing developer that specializes in selling homes costing less than MYR500,000. The group began as a Perak-based developer over 30 years ago under the stewardship of the late Mr. Ho Mok Heng, which was passed down to his son, Mr. Ho Wen Yan. To date, HYB has completed more than 13,000 residential, commercial and industrial projects with a GDV of more than MYR1.8b. It is primarily focused in three main regions – Selangor, Johor and Perak, with projects such as One South in Selangor, Taman Pulai Indah/Hijauan in Johor and Bandar Universiti Seri Iskandar (BUSK) in Perak.

Why are we highlighting this stock? HYB offers an excellent proxy to the affordable housing segment and will be less affected by the upcoming credit tightening measures. Consensus estimates HYB to make a net profit of MY89.7m in FY3/14, translating to a 5-year earnings CAGR of 59%. The stock is trading at a prospective CY14 PER of 5.6x, lower than its small/mid-cap peers’ average of 6.5x despite a superior ROE of 23%. It paid a DPS of 12 sen in FY3/13 (33% net profit payout) and is expected to pay 14 sen DPS in FY3/14, which translates to a net yield of 4.6%. Current valuations are undemanding given its projected growth of 32% in CY13 and 13% in CY14. We estimate a RNAV of MYR922m or MYR4.66/share. Imputing a 20% discount to its RNAV for its smaller market cap implies a fair value of MYR3.73 (+23% from current levels), which translates to a CY14 PER of 6x.

Targeting First-Time Home Buyers. HYB stands to benefit from Budget 2013 due to improvements made to the My First Home Scheme. According to the Population and Housing Census Malaysia 2010, ~25% of Malaysians purchasing property are first-time home buyers within the 25-40 age range. HYB’s properties, particularly in Johor and Perak, are priced between MYR100-400k/unit and 70% of HYB’s customers are first-time home buyers.

Record FY3/13 net profit. HYB has sold 81% of its ongoing projects valued at MYR842m, including MYR402m of new sales in FY3/13. Net profit rose 33% YoY to a record MYR71m, with strong contribution from One South, Taman Pulai and BUSK which sustained gross margins at 37% despite 23% lower YoY sales due to its decision to hold back new launches at Desa Pandan and Shah Alam.

Total GDV of MYR4b until 2023. HYB has unbilled sales of MYR523m as at 31 Mar 2013 and plans to launch MYR1b of new projects in FY3/14, including six new projects in the Klang Valley, Johor and Perak. The group has 1,505 acres of landbank, of which 700 acres are undeveloped. It has a remaining GDV of MYR4.05b which will last the group another 10 years. Recent land acquisitions in Desa Pandan, Puchong, Seri Kembangan and Shah Alam will boost its GDV in the Klang Valley to 50%, with another 30% from Johor and 20% from Perak.

Healthy Balance Sheet. HYB recently purchased 3.73 acres of land in Seri Kembangan for MYR57m (MYR350 psf) for a mixed development project comprising 2 blocks of service apartments and 2 levels of retail units with a potential GDV of MYR285m and estimated gross margins of 25% within 3 years. The acquisition will raise its gearing from 0.26x to 0.38x. Post this acquisition, we estimate that HYB still has debt headroom of ~MYR100m before hitting its internal gearing cap of 0.6x.

Source: Maybank Research - 11 Jul 2013

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