• Hua Yang’s net profit of RM60.7m for FY17 is below ours and consensus making up 83% of full year estimates.

• Total new sales of RM239m represents a short-fall of 20% from targeted sales of RM300m for the full year.

• As expected, new sales were mostly contributed by its township projects in Johor and Perak which collectively make up 62% of the total sales of RM239m.

• Maintain HOLD with TP of RM1.12 based on blended valuation of PER and PBV of 5.0x and 0.9x respectively.

Sales on downtrend since the restriction DIBS

Group’s sales dropped 29% yoy from RM337m in FY16 to RM239 for FY17. We reckon that the group continued to struggle converting booking into sales ever since financial institutions restricted their lending requirements. The group managed to secure close to 30% from their new launches, viz Astetica and Meritus, amounting to RM65m collectively. In tandem with continuous weakening in sales, group’s unbilled sales eased to RM214m (FY16 : RM463m; FY15: RM702m).

Decline in net profit

For FY17, net profit of RM60.7m saw a sharp decline of 45% yoy in comparison with RM110m achieved in FY16. This drop is in tandem with lower revenue, compounded by reduction in profit margins. As mentioned above, the weaker revenue is dragged by slower progressive billings registered and compounded further by a few on-going projects which were at the tail-end of construction cycle.

Focusing on Magna Prima

Moving forward, we do not expect any major landbanking activities as the group would be focusing on their future plan with Magna Prima. To recap, Hua Yang will own a total of 30.9% stake in Magna Prima pending the conclusion of the deal expected by end-2Q17. The group had already acquired a board seat in the group. We understand that the total acquisition of close to RM189.8m is expected to increase group’s net gearing up to 0.6x. However, the move is positive as this allows them to tap into Magna Prima’s prime landbank measuring 35 acres located in Shah Alam which is expected to fetch a potential GDV of RM1.6bn.

We maintain our HOLD call with a TP of RM1.12 based on blended valuation of PER and PBV of 5.0x and 0.9x respectively. Total dividend declared was 4 sen for FY17. We expect the property market to remain challenging for the group due to stricter bank lending requirement.

Source: BIMB Securities Research - 18 May 2017