News

Last Friday, Hua Yang Berhad (HUAYANG) announced that it has terminated its SPA with Nation Holdings Sdn Bhd (NATION) to acquire a parcel of leasehold land measuring 8.09 acres in Selayang for a total consideration of RM120.0m or RM340.5psf, as NATION was unable to fulfil one of the condition precedents within the timeline of 4 months and 10 days.

Comments

We were surprised by the termination of the proposed land acquisition, as this was part of HUAYANG’s landbank replenishment target in the Klang Valley. To recap, HUAYANG entered into the SPA with NATION back in 30 Jan15, and the land had a potential GDV of RM800m.

However, we are not entirely negative with HUAYANG terminating the land deal as NATION was unable to fulfil the condition precedents in the SPA (which entails important feasibility factors to be met; e.g. development order approval with a plot ratio of 5 coupled with an access to MRR2) which would affect HUAYANG’s development plans for the land.

On a positive note, the termination will open up more opportunities for HUAYANG to look for better land deals in Klang Valley under current market conditions, as purchasers will have better negotiation power.

Nonetheless, we are still expecting its net gearing to stay at 0.6x levels in FY16, as HUAYANG looks to secure another landbank of similar size with this Selayang land.

Outlook

Following the termination of its Selayang land deal, we expect more landbanking newsflow from HUAYANG in nearto- mid term to meet our landbank replenishment assumptions of RM1.67b in 2015.

While the property market remains subdued, we believe that HUAYANG will still be able to maintain its performance as it is well supported by its healthy unbilled sales of RM702.0m.

Forecast

No changes to our FY15-16E earnings, as we did not factor in the potential contribution from the land.

Rating

Maintain OUTPERFORM

Valuation

The termination of the land deal may cause some temporary knee-jerk reactions to its share price. Fundamentally, we reiterate our OUTPERFORM call with an unchanged Target Price of RM2.20 as we still like HUAYANG for its competitive edge in the affordable housing segment. Our TP of RM2.20 is based on 38.0% discount to its RNAV of RM3.52, which is inclusive of RM1.67b worth of GDV replenishment assumptions (of which RM1.3b remain after its Selayang land deal termination). To date, HUAYANG has only managed to replenish GDV by RM314m.

Its valuation of 4.7x FY16E PER and net dividend yield of 6.7% remain fairly decent compared to its mid-cap peers’ 10.0x and 4.0%, respectively.

Risks to Our Call

Weaker-than-expected property sales.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments.

Source: Kenanga Research - 15 Jun 2015