Period  1Q15

Actual vs. Expectations Hua Yang Bhd’s (HUAYANG) 1Q15 core earnings of RM23.9m came in within our and consensus expectations, accounting for 23% of ours and consensus estimates.

 However, its 1Q15 sales of RM81.9m (-8%, YoY) was below our expectations, making up only 12% of our FY15 sales estimates of RM665m. We believe that the lower sales was due to a lack of new launches in the beginning of the year vis-à-vis its RM1.1b planned launches for FY15.

Dividends  No dividend was declared as expected.

Key Results Highlights YoY, HUAYANG’s 1Q15 net profit saw a major improvement of 94% from RM12.3m to RM23.9m on the back of stronger revenue (+70%) coupled with better EBITDA margins of 24% (+3ppt). The improvement in revenue was driven by better billings from its existing projects, i.e. One South, Taman Pulai Indah and Taman Pulai Hijauan while we believe that the expansion in margins was due to steadier progress of its projects on lesser labour issue as compared to 1Q14.

 QoQ, its revenue was down by 31% to RM136.5m followed by its earnings, which also saw a decrease of 37% to RM23.9m. The slump in revenue and earnings in 1Q15 was due to an exceptional better 4Q14 whereby HUAYANG fully recognised and handed over one of its high-rise projects in Klang Valley namely Parc @ One South in 4Q14. Its net gearing also saw some improvements from 0.56x to 0.52x.

Outlook  Moving forward, we would expect its earnings growth momentum to continue, underpinned by strong unbilled sales of RM756m and targeted launches worth RM1.1b in the pipeline which includes a mixed development project in Puchong.

 The company is targeting land banking activities in the next 6-12 months as management has already prepared RM250m Sukuk program solely for land banking purposes.

Change to Forecasts No changes to earnings forecast.

Rating UNDER REVIEW

Valuation  Over the last 6 weeks, the share price has risen sharply by 25% and has exceeded our TP and we reckon the run-up could be strong results during the last quarter and potential landbanking news. Also, prior this run-up, its dividend yield was also very strong at 7%. However, current its FY15E yield is now at 5.6% vs. peer’s 4.0%. We hope to get more clarity on its landbanking timeline and how they will be managing their balance sheet. We will review our CALL/TP pending today’s result briefing. Our previous recommendation was MARKET PERFORM and TP of RM2.15, which is a 26% discount to its RNAV of RM2.91.

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

 Balance sheet risk should its net gearing persistently stays above 0.5x.

 Sector risks, including overly negative policies.

Source: Kenanga