Period     4Q/FY13

Actual vs. Expectations    FY13 net profit of RM70.5m was within expectations, making up 99.2% and 97.8% of street and our FY13E earnings, respectively. 

Dividends    Proposed a final single tier dividend of 8.25sen, ending the financial year with total dividend of 13.25sen (4.5% yield) or above our earlier forecast of 10.9sen by 21.6%.  

Key Results Highlights    QoQ, 4Q13 pretax profit declined 13.7% to RM23.3m on the back of a 2.1% decline in revenue and higher operating costs. Gross margin slipped by 6.2ppt to more normalized levels of 34.4% as last quarter was boosted by a higher-margin mix. Furthermore, new launches like Taman Pulai Hijauan will incur lower margins at the initial stages. 

YoY, 4Q13 earnings improved by 29.9% supported by a 21.5% increase in revenue. Meanwhile, FY13 earnings increased 32.9% buoyed by a 33.4% improvement in revenue. This was mainly attributable to the strong sales and billings from One South, Taman Pulai Indah and Bandar Universiti Seri Iskandar. Property PBT margins did slide slightly by 0.6ppts YoY largely due to product mix. However, this was cushioned by positive earnings from other operations such as rental fees as compared to a net loss in FY12.

Outlook    We understand that management is looking for pocket landbanks in Klang Valley. Although there is no clarity on acquisition size, we believe it will likely increase its total remaining GDV by RM200m - RM400m, assuming the company increases its current net gearing of 0.26x to 0.4x-0.6x. Moreover, we believe the group will be rolling out few of new launches that have been holding back due to GE such as the projects in Desa Pandan and Shah Alam.

Change to Forecasts        We have fine-tuned FY14E earnings slightly down by 0.1% to RM88.8m and estimate RM105.2m NP for FY15E. Unbilled sales are extremely healthy at RM523m providing 1 year visibility.

Rating    Maintain OUTPERFORM

In-line with the sector call. We still like developers with exposure to the affordable housing segment and Johor. Besides, Hua Yang still offers a decent dividend yield of 4.6% for FY14E.

Valuation     Upgrading our TP from RM2.30 to RM3.52 by removing the discount factor from our FD SoP RNAV. Our previous TP was based on 35% discount to our FD SoP RNAV. 

Risks    Unable to meet sales targets or replenish landbank.

Sector risks, including negative policies. 

Source: Kenanga