HUAYANG held its briefing yesterday and we came away feeling more reassured by: (i) stronger billings in 2H14, which will be driven mainly by projects that are near to completion such as Parc@OneSouth, while substructure works are underway for some of the upcoming new project launches, which mean billings will be immediate upon SPA sales; and (ii) some new projects’ GDVs have been revised higher as prices have moved up. We believe our RM613.0m sales target for FY14E is achievable, buoyed by more than RM1.0b launches in the pipeline for the year and current unbilled sales of RM530m. Sales momentum will pick up after Hari Raya in August. Increasing TP from RM3.52 (Post-bonus: RM2.64) to RM3.88 (Post-bonus: RM2.91) due to our annual house-keeping, while maintaining our stance that it  should be on parity with our DCF-driven RNAV. 

Outlook remains intact. Although 1Q14 results looked weak, the management re-emphasizes that their plans remain intact to achieve revenue and sales targets of circa RM0.5b and RM0.6b for FY14, respectively. 2Q14 is expected to  see QoQ improvements, followed by a stronger 2H14 on the back of stronger unbilled sales of RM530.3m and more than RM1b worth of launches lined up over the remaining quarters of FY14. Moreover, the company has commenced substructure works for new upcoming launches such as Sentrio Suites@Desa Pandan and Metia Residences@Shah Alam. This would mean immediate billings when they rake-in SPA sales from these projects (refer overleaf for details).

Higher FY14E sales. The group will be launching RM1.0b GDV worth of projects this year. This includes 6 new projects with total GDV of RM690m (e.g. Metia Residences@Shah Alam, Polo Park, Jalan Abdul Samad@Johor, etc) while the balance from ongoing projects like Phase 5@OneSouth. The breakdown between Klang Valley and other regions will be 43:57. Assuming a conservative take-up rate of 70%  on the RM1.0b GDV, we believe our sales projections for FY14E of RM613m (+52% YoY) are realistic. Hence, we maintain our earnings assumptions as well. 

HUAYANG continues to be one of our favourite property developers as it is one of the few to focus on the affordable housing market which will enjoy resilient demand for years to come. We also believe that it will not be impacted by Bank Negara shortening the tenure on maximum mortgage tenures to 35 years from 45 as the impact is not overly material while we gather there are a lot of parents providing financial assistance for their children’s homes (refer overleaf for further details). We reckon the pool of mass  home  buyers  will  continue  to  grow  as  affordability  becomes  an overbearing issue for higher priced developments. We also like to highlight that one of the biggest bulk of property demand is for units priced between RM250,000-RM500,000.  

Reiterate OUTPERFORM with higher TP of RM3.88 (Post-bonus of RM2.91) from RM3.52 (Post-bonus of  RM2.64), due to house-keeping purposes. We maintain our stance that its TP should be on parity with its DCF-driven RNAV @ 10% WACC as we believe its ability to capitalise on its landbanks will become more imminent as property prices continue to trend upwards coupled with the growing need for mass housings. Our TP offers 25% of total return, including 4.4% dividend yield for FY14.

Source: Kenanga