Post briefing, we came away feeling NEUTRAL as there were no major fresh developments from the last quarter. As it is, FY16 planned launches of RM633.0m and its sales target of RM500.0m backed by new and on-going projects are already at achievable levels. Albeit the softer 1Q16 sales, the group is skewing launches to the latter part of CY15, as are most other developers. Hence, we are keeping our slightly more conservative FY16E sales of RM482.0m and made no changes to our FY16-17E earnings estimates. The group will continue to focus on finding new land opportunities. We maintain our OUTPERFORM call on HUAYANG with an unchanged Target Price of RM2.20 that is based on a 38.0% discount to its RNAV of RM3.52, as we still like the stock for its positioning in the affordable housing market space, and at current levels, it is trading at an undemanding valuation of FY16E PER of 4.5x coupled with a highly attractive dividend yield at 6.9%, vis-à-vis its small-mid cap developer peers’ average of 7.8x and dividend yield of 4.7%.

Targeted launches on-track. While its 1Q16 sales of RM82.0m were slower than expected due to the lukewarm response from the market due to a wait-and-see approach from buyers and tight credit control of bankers, coupled with the timing of its launches is skewed towards 2H16, management is still keeping its launch target of RM633.0m for FY16. It features the Mines South (GDV: RM368.0m) in Klang Valley while the remaining 42.0% of its planned launches are from other states, i.e. Johor (25.0%), Perak (14.0%), and Negeri Sembilan (3.0%). As for its upcoming flagship development namely Puchong West (GDV: RM1.35b), management indicated that while the development order approval process is taking longer than expected, they are still hopeful that it would be launched in FY17.

Sales target remains intact at RM500.0m. While its 1Q16 sales appear to be slower than expected at only RM82.0m, management is still maintaining its FY16 sales target of RM500.0m by clearing off its “inventories” from previous launches i.e. One South Cube and Zeta (GDV: RM195.0m) and Citywoods (GDV: RM217.0m), coupled with its planned new launches of RM633.0m. As such, we are also maintaining our FY16E sales of RM482.0m as we are banking on launches being skewed to 2H16. Thus, our FY16-17E earnings estimates remain unchanged.

Landbanking a top priority! Yesterday, management reiterated that landbank replenishment is a top priority for the group in FY16 and FY17, especially with the cancellation of its Selayang land purchase, and management is striving to replenish at least RM800.0m worth of GDV in the near to mid-term to replace the cancelled Selayang land deal. To date, HUAYANG has replenished at least RM314.0m worth of GDV in 1H16. We are still expecting its net gearing to stay at the 0.6x level in FY16, as HUAYANG looks to secure another landbank of similar size with this Selayang land.

OUTPERFORM maintained. We maintain OUTPERFORM on HUAYANG with an unchanged TP of RM2.20, which is at a 38.0% discount to its DCF-driven RNAV @ 10.0% WACC of RM3.52. Our applied discount of 38.0% is slightly higher compared to its affordable housing developer peers’ discount rate of 25.0% i.e. MATRIX given its higher net gearing levels but still below our sector average of 55.0%. That said, at current levels, it is trading at an undemanding valuation of FY16E PER of 4.5x coupled with a highly attractive dividend yield at 6.9%, vis-à-vis its smallmid -cap developer peers’ average of 7.8x and dividend yield of 4.7% .

Source: Kenanga Research - 15 Jul 2015