News

Last Friday, Hua Yang Berhad (HUAYANG) announced that it would be acquiring the entire paid up share capital of G Land Development Sdn Bhd (GLD) for a total cash consideration of RM16.5m. Subsequently, it will be acquiring 6 parcels of freehold land measuring 8.59acres in Seberang Prai for a total cash consideration of RM25.0m or RM66.80psf.

Comments

The 6 parcels of land have been earmarked for a mixed development that comprises 480 units of service apartment, 148 units of condominium and 16 units of 2-storey shop with a potential GDV of RM311.0m. We are neutral to positive on the acquisition as it does increase the group’s visibility but has no changes to our FD RNAV, as the said project GDV is part of our GDV replenishment assumptions of RM1.4b for HUAYANG. Also, this does not surprise us as replenishing landbank has been HUAYANG’s main focus (refer to 23-Oct- 15 report).

As HUAYANG are required to acquire GLD for the development of the land, the total land cost would sum up to RM41.5m or RM111.05psf (GLD and Land acquisition cost combined). We believe that the total acquisition cost of RM41.5m to be fair as it works out to be 13% of the estimated GDV of RM311.0m, which is still well below our comfortable threshold of 20%. As of 1Q16, its net gearing stands comfortably at 0.32x and we would still expect its net gearing to come up to 0.56x in FY16, well within our comfortable threshold of 0.5x-0.6x should it secure a few more landbanks as part of its GDP replenishment.

The land is located 3km away from the Penang Bridge and it is still within the vicinity of several lifestyle and shopping destinations, which includes Mydin Hypermall, Mega Mall in Butterworth as well as Sunway Carnival Mall, Tesco and Aeon Big.

Outlook

While we are still expecting the management to launch approximately RM650.0m worth of projects in FY16, we do not rule out the possibilities that some of these planned launches might be pushed back again depending on the market situation. However, we remain certain that HUAYANG would continue to look out for more landbanks in the near future, as the management are looking to beef up its existing GDV of RM3.7b to RM5.0b.

Forecast

No changes to our FY15-16E earnings.

Rating

Maintain OUTPERFORM

Valuation

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. 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 PER of 7.9x and dividend yield of 4.3%, 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 - 7 Dec 2015