HUAYANG’s FY16 net profit of RM110.1m met ours but missed consensus expectations marginally accounting for 100% and 94% of estimates, respectively. No final dividend declared and full-year dividend of 5.0 sen came short of our expectations of 13.1 sen. Property sales of RM336.8m also came below our and management’s target of RM372.1m and RM400.0m, respectively. Our earnings estimate, call and TP are currently UNDER REVIEW (previously, OUTPERFORM, RM2.20).

FY16 earnings of RM110.1m came in within our forecast but missed consensus expectations marginally accounting for 100% and 94%, respectively. Property sales of RM336.8m and full-year dividend of 5.0 sen missed our expectations of RM372.1m and 13.1 sen, respectively. The weaker-than-expected sales was predominantly due to the prolonged challenging environment in the property market stemming from high loan rejection rates, especially in the affordable housing category and delay in launches. Likewise, the disappointment in dividend pay-out could be due to management’s prudent stance in conserving more cash for future land banking purposes.

YOY remains flattish. Its FY16 top and bottom-line performance remains flattish driven mostly by all of its on-going projects, i.e. One South, Sentrio Suites, Taman Pulai Indah and Taman Pulai Hijauan. On a positive note, its net gearing came down substantially from 0.49x to 0.34x. QoQ, revenue and net profit came down by 18% and 29%, respectively, due to the lack of project handover in 4Q16.

1-for-3, bonus issue. Despite the cut back in dividend, managements are still striving its best to reward shareholders. Hence, along with its FY16 results announcement, HUAYANG has proposed a bonus issue of 1 bonus share for every 3 shares held as a “reward” for its shareholders.

Outlook. Moving into FY17, managements are planning to launch up to RM721.0m worth of projects, targeting RM500.0m worth of sales and also planning to scale back its dividends to conserve more cash for land banking purposes in the near future. However, we are less optimistic on the management’s FY17 sales target of RM500.0m, as we are looking at only RM400.0m sales for FY17 with a potential downside bias should the current circumstances in the property market remain unchanged.

UNDER REVIEW. As of now, we are placing our earnings estimate, recommendation and Target Price for HUAYANG UNDER REVIEW, pending clarity on its mid-to-near term prospects from an analysts’ briefing to be held today. Previously, we had an OUTPERFORM call on HUAYANG with TP of RM2.20 which is at a 38.0% discount to its DCF-driven RNAV @ 10.0% WACC of RM3.52.

Source: Kenanga Research - 19 May 2016