Although Hua Yang has undergone a slight correction to RM2.72 since its all-time high of RM3.07 or YTD gains of 88%, they remain one of our favourite picks amongst the small-mid cap space due to its exposure to Johor and affordable housing segment. Moreover, FY14E would be another good year, as sales and earnings are expected to grow by 52% and 26% YoY, respectively, buoyed by its record-high launch target of RM1b and current unbilled sales of RM523m. We also like their ability to source landbank at competitive costs and maintain its pricing strategy within the affordable range while preserving decent gross margins of 35%. Forecast maintained. Coupled with a decent dividend yield of 4.9%, we reiterate our OUTPERFORM call on Hua Yang with TP of RM3.52. Our TP is on parity with our DCF-driven RNAV @ 10 WACC, which implies 1.7x FY14E PBV.
Strong growth still. In FY13, Hua Yang continues to deliver strong revenue and earnings of 33.4% and 32.9% YoY, respectively, underpinned by its flagship and on-going projects like One South, Taman Pulai Indah in Johor and Bandar Universiti Seri Iskandar (“BUSI”) in Perak. Gross profit margin improved by 1.8ppt to 37%, which was attributable to higher margin projects such as One South and BUSI. Net profit margin dropped slightly by 0.5ppt, mainly due to higher cost resulting from a RM20m one-off consulting fee over the en-bloc sales of the retail block in One South. Hua Yang registered lower sales of RM401.5m as compared to RM519.7m in FY12 and our earlier full year forecast of RM452m. The lower YoY sales were due to their decision to hold back new launches before General Election i.e. Desa Pandan and Shah Alam’s pocket lands.
FY14E sales to register 52% YoY growth. The company is planning to launch One South Phase 5, Shah Alam, Desa Pandan and other on-going projects. Total launches will be worth GDV c. RM1.0b, of which RM690m are
from new projects. The breakdown between Klang Valley, Johor and other regions will be 46:41:13. Based on their FY14E launch target, we are confident of our FY14-15E projected sales of RM613m (+52% YoY) and RM754m (+23% YoY). Thus, we maintain our earnings estimates.
Eyeing more landbank. Hua Yang is eyeing more pocket landbank in Klang Valley and is in the midst of finalizing one soon; details to be revealed later. Its strategy is to focus on high density, which allows more flexibility in pricing housing units below RM500k/unit within populated areas. Hua Yang is currently well positioned to embark on more acquisitions as its net gearing is at a low level of 0.26x, meaning it has the capacity to borrow up to RM125m based on its comfortable net gearing of 0.6x. If so, the group can replenish up to RM1.2b worth of new GDV, assuming similar parameters to its recent Puchong land acquisition where land cost made up c. 10% of GDV. This provides the company decent room for growth as management intends to replenish c. RM600m new GDV p.a. to ensure healthy earnings growth of 20% YoY.
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