We came away HUAYANG’s post results briefing feeling reassured of our RM273.4m sales target, as management guided for launches worth RM706m to be back loaded in 4Q17. Moving ahead, management remains conservative with cash being a priority while looking out for land bank opportunities to beef up their existing GDV of RM4.6b. We lowered our FY17-18E earnings by 19-4% after lowering billings recognition. Maintain MP with an unchanged TP of RM1.10 based on 58% discount to its RNAV of RM2.64.

Lowering the bars. This time around, management sounded much more cautious as compared to the previous briefing session held back in 25th Oct 2017, highlighting the challenges faced in the property market underpinned by various factors, i.e. delay in approvals, high loan rejection rates, rising cost of living, buyers’ wait and see attitude and etc. These factors are the reasons behind the delay in their RM706.0m worth of launches, which is now back loaded to 4QFY17 (or 1QCY17). Thus, management had to revise down their FY17 sales target of RM500.0m to RM300.0m. We believe that our and management’s FY17 sales target of RM273.4m and RM300.0m, respectively, are still within reach, underpinned by the two major launches, namely Asthetica and Meritus amounting to RM588.0m.

Land banking. While it has always been management’s target to replenish its existing GDV to RM5.0b, land banking had been slow, as management has taken a more cautious stance in its replenishment. On the positive side, they managed to revise the GDV for its upcoming flagship project, i.e. Puchong West higher, from RM1.3b to RM2.0b bringing its remaining GDV to RM4.6b from RM3.9b previously due to the change in average selling price and product mix. Hence, we believe that with the upward revision in GDV from Puchong West, we expect management to be more cautious in their land banking moves.

Cash conservation still a priority. Cash conservation is management’s top priority, as this allows the group better financial position to undertake any land banking opportunities. While management indicated that they are considering to resume their DPR of 30% as practiced in the past, we are not expecting a final dividend to be declared in 4Q17. Hence, we are keeping our DPR assumptions for FY17-18E at 10%, implying dividend yields of 1.9-1.7%.

Earnings downgrade. Post briefing, lowered our FY17-18E earnings by 19-4%, as we lowered our FY17-18E billings recognition, given that previous assumptions were overly aggressive. No changes in our FY17-18E sales target of RM273.4m and RM331.0m. Its Unbilled sales of RM215.6m only provide visibility for the next two quarters.

MARKET PERFORM maintained. Despite the reduction in our FY17- 18E earnings estimate, we are still keeping our MP call on the stock with an unchanged Target Price of RM1.10 that is based on 58% near its trough valuation discount to its RNAV of RM2.64; note that we had reduced our TP during our recent sector report (15/1/17). No changes to our RNAV of RM2.64 albeit the upward revision in Puchong West GDV of RM700.0m as it is within our replenishment assumptions. Post adjustment, there are no more replenishment assumptions in our RNAV. Our TP of RM1.10 implies FY17-18E PER of 5.5-6.3x, which is still lower compared to its small-mid cap peers average of 7.7x-7.0x.

Risks to our call: (i) Weaker-than-expected property sales, (ii) Higher-than-expected sales and administrative costs, (iii) Negative real estate policies, (iv) Tighter lending environments, and (v) Higher-than- expected dividend pay-out.

Source: Kenanga Research - 19 Jan 2017