Period  4Q14/FY14

Actual vs.Expectations Hua Yang Bhd (HUAYANG)’s FY14 core earnings of RM82.2m came in well ahead of our and consensus forecasts by 7% and 14%, respectively. We believe that the better-than-expected results were mainly driven by better margins from its completed projects.

 FY14 sales of RM734.8m (+83%) also topped our fullyear sales estimates by 18%. 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 which reiterates our stance that affordable housing plays are seeing resilient demand.

Dividends  A final single tier dividend of 7 sen was proposed, or total FY14E net dividend of 12 sen (6.6% yield) which is slightly ahead of our forecast of 11 sen.

Key Results Highlights QoQ, 4Q14 net profit jumped 92% to RM37.8m on the back of the improvement in revenue (+53% QoQ) driven by better billings from its projects, particularly Parc@One South, which was delivered during the quarter. We believe that sales/marketing cost has normalized as most of these expenses were incurred in 3Q14 (Greenz@One South, Metia Residence and Sentrio Suites) which subsequently translated into better EBITDA margins (+5ppt) to 26.5%. Apart from earnings, its net gearing also saw improvement as it was further pared down to 0.56x from the previous high of 0.69x.

 For FY14, the improvement of 17% YoY in its net profit to RM82.2m was also driven by the increase in revenue (+25% YoY) as some of its projects billings had picked up pace i.e. Taman Pulai Indah, Taman Pulai Hijauan, and also One South. However, their fullyear pre-tax margin has slid by 1ppt due to higher operating cost (+25%).

Outlook  Moving into FY15, we would expect its earnings growth momentum to continue, underpinned by strong unbilled sales and targeted launchings worth RM1.1b in the pipeline which may likely include Puchong and Seri Kembangan.

 We are also seeking further clarity on their proposed issuance of RM250m Sukuk program, which is intended for future landbanking.

Change to Forecasts No changes to earnings forecast, pending their upcoming briefing on 22nd May 2014. HUAYANG’s unbilled sales remain high at RM808m with at least 1.5 year visibility.

Rating Maintain OUTPERFORM

Valuation  Our TP is maintained at RM1.96, which is at a 33% discount to its RNAV of RM2.91. We continue to maintain our OP call on the stock given its foothold in the mass housing segment and attractive dividend yield of 6.6% which is above mid-cap developers’ average dividend yields of 4.5%.

Risks to Our Call    Failure to meet sales targets or replenish landbank. Balance sheet risks if net gearing is persistently above 0.5x.

 Sector risks, including overly negative policies.

Source: Kenanga