Period  3Q14 / 9M14

Actual vs. Expectations Hua Yang Berhad (HYB)’s 9M14 net profit of RM44.5m is lower than our and street’s expectation. Its 9M14 earnings only make up 57% and 51% of our and street’s full year forecasts, respectively. The weakerthan-expected performance is largely due to slower billings progress as timing of some of their new launches was later than expected.

 9M14 sales amounted to RM580m (+86% YoY), which is proportionately ahead of our full-year sales estimates. The improvement in sales was underpinned by its new launches of affordable high-rise residentials in the Klang Valley namely Sentrio Suites, Greenz @ One South, and Metia Residence, which achieved strong take-up rates.

Dividends  5 sen single tier dividend was announced. For the year, we are expecting 8.8 sen (4.4% yield).

Key Results Highlights QoQ, 3Q14 net profit improved significantly by 61% to RM19.9m largely driven by higher revenue (+28%) which was underpinned by better billings progress as the construction works for its earlier launches in prior quarters picked-up pace. Gross margins also improved to 36% from 29% as the group reigned in construction costs.

 YoY, 3Q14 earnings of RM19.9m are rather flattish (-0.2%) despite a 24% improvement in revenue, which was offset by higher sales and marketing costs (+27%) incurred for new launches such as Greenz @ One South, Metia Residence and Sentrio Suites.

 For 9M14, net profit decline by 17% to RM44.5m which was largely due the slower-than-expected construction progress of launches while 9M13 included the completion of the Street Mall @ OneSouth which enjoyed higher margins.

 Net gearing increased to 0.7x from 0.6x QoQ as acquisition of Mines South was completed this quarter. At this juncture, we believe net gearing is above our comfort level.

Outlook  We strongly believe that with its record-high unbilled sales of RM838m (1.5 years visibility), its billings will spill over to FY15-FY16 as we expect the construction progress for its newly launched projects to pick up pace coupled with stronger recognition of completion of Greenz @ OneSouth Phase 1.

Change to Forecasts No changes to earnings forecast, pending their upcoming briefing on 27th January 2014. However, there maybe a downside bias to our earnings estimates as we may need to adjust for timing of recognition. We hope to get further clarity before changing our sales estimates, as well as, their capital management plan going forward.

Rating Maintain OUTPERFORM

 We believe that the recent measures undertaken by the government to curb property prices would not be a major dampener to demand for affordable mass housing, HYB’s bread and butter.

Valuation  Maintaining our TP at RM2.33 which is a 20% discount to our DCF-driven RNAV @ 10% WACC.

Risks to Our Call Failure to meet sales targets or replenish landbank.

Sector risks, including overly negative policies.

Source: Kenanga