FY18 CNP of RM4.4m came in above expectations; accounting for 147%/191% of our/consensus full-year estimates, respectively. For FY18, HUAYANG registered RM221.8m worth of property sales which is on track with our target of RM219.0m. No dividend declared as expected. We maintain our FY19E earnings, and introduce FY20E earnings of RM12.5m. Maintain MP with lower TP of RM0.470 (previously, RM0.500).

Above expectations. FY18 CNP of RM4.4m came in above expectations; accounting for 147%/191% of our/consensus full-year estimates, respectively. The positive variance could be from the improved performance from its associate, i.e. MAGNA. For FY18, HUAYANG registered RM221.8m worth of sales which is within our sales target of RM219.0m. No dividend declared as expected.

Results highlight. FY18 CNP saw a drastic decline of 93%, YoY, premised on several factors; (i) decline in revenue (-40%) due to timing of recognition as its newly launched projects have yet to reach meaningful billing stage coupled with weak sales, and (ii) compression in pre-tax margins (-16ppt) due to the loss of economies of scale due to the slump in revenue coupled with high fixed overhead and financing costs (+613%) incurred for the investment in MAGNA. QoQ, it registered net profit of RM3.1m in 4Q18 compared to RM1.0m losses in 3Q18, mainly due to positive contribution from MAGNA.

Outlook. Going forward, we do not expect any more major land banking activities as we believe that HUAYANG needs to focus on realizing their pipelines and also future plans with MAGNA. Unbilled sales have fallen to a low of RM178.9m, which is only sufficient for another 1-2 quarters. We opine that HUAYANG should be more aggressive driving its sales from launched projects (unsold GDV: RM571.9m) that received slow response from the market albeit being positioned as an affordable housing player (>50% of products priced around RM550k per unit) in Klang Valley, Penang and Johor.

Earnings maintained, introduce FY20E earnings. Post results, we are keeping our FY19E earnings for now, and also introduce our FY20E earnings of RM12.5m backed by sales target of RM246.8m. However, we might look to review our estimates post a result briefing that is scheduled to be held today.

Maintain MARKET PERFORM. Despite the better performance in earnings, we are still keeping our MARKET PERFORM call with a lower Target Price of RM0.470 (from RM0.500) on HUAYANG, as we lowered our project margin assumptions in RNAV to better reflect its current margin trend, while maintaining our RNAV discount of 83%, which is at -2.5SD levels.

Risks to our call include; (i) lower-than-expected sales, (ii) higher- than-expected administrative costs, (iii) negative real estate policies, (iv) less conducive lending environment, and (v) lower-than-expected dividend payout.

Source: Kenanga Research - 23 May 2018