News

Yesterday, HUAYANG announced that they would be acquiring Grand View Realty Sdn Bhd (GVSB) for a total consideration of RM75.6m. The main rationale in acquiring GVSB was to acquire the 73.2 acres of freehold land adjacent to Kota Masai, Johor owned by GVSB. The purchase consideration for the land would translate to RM23.72psf.

Comments

We are not surprised with HUAYANG’s land acquisition down south as management has highlighted that they had been actively looking for land banking opportunities in several locations, i.e. central, north and south. However, we opine that the replenishment of land bank down south as a timely move by management, as it serves as replenishment for its existing township project, i.e. Taman Pulai Hijauan, and Taman Pulai Indah.

The above mentioned land that is strategically located within the vicinity of Eco Tropics, Taman Pasir Puteh, Eco Business Park 3, Sime Darby Business Park and Dover Business park would be earmarked for affordable housing township development consisting landed residential products, i.e. cluster, semi-d, and bungalow, coupled with shop offices and Johor affordable housing scheme with an estimated GDV of RM346.4m.

In terms of land costs, we opine that it is slightly on the high side as the total purchase consideration of RM75.6m implies a land cost to GDV ratio of 22%, which is beyond theirs and our comfortable threshold 20%. However, in terms of pricing per square feet the transacted price of RM23.72psf are much lower compared to the average asking price of RM36.00psf in that region. Nonetheless, we believe that HUAYANG would be able to further enhance its GDV in the future like how they managed with its some of its projects, i.e. One South and Sentrio Suites. As of 2Q16, its net gearing remains fairly healthy at 0.32x and we would expect its net gearing to come up to 0.56x in FY16 as HUAYANG continues to embark on its land banking ambitions.

Outlook

We are still expecting management to launch approximately RM650.0m worth of projects in FY16, but we do not rule out the possibilities that some of these planned launches might be pushed back again depending on the market situation. Nonetheless, we remain certain that HUAYANG would continue to look out for more land banks in the near future, as the management are looking to beef up its existing GDV of RM4.0b to RM5.0b.

Forecast

Unchanged.

Rating

Maintain OUTPERFORM

Valuation

We reiterate 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. There are no changes to our Target Price of RM2.20, albeit the replenishment of GDV of RM346.4m arising from the land acquisition as we have previously factored in RM1.0b worth of assumptions with RM692.0m remaining currently. At current levels, it is trading at an undemanding valuation of FY16E PER of 4.4x coupled with a highly attractive dividend yield at 7.0%, 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 - 12 Jan 2016