1Q20 CNP of RM3.7m makes up 45%/35% of our/consensus full-year estimates. However, we deem it as broadly in-line as its associate, i.e. MAGNA, is likely to drag down overall earnings in subsequent quarters. Property sales of RM68.1m are on track to meet our full-year target of RM251.7m. No dividends declared as expected. No changes to FY20-21E earnings. Maintain UP with unchanged TP of RM0.335.

Broadly in-line. 1Q20 CNP of RM3.7m makes up 45%/35% of our/consensus full-year estimates. However, we deem it broadly in-line as we expect that the contribution from its associate, i.e. MAGNA to remain inconsistent/volatile which may drag down overall earnings in subsequent quarters. Property sales of RM68.1m are on track to meet our full-year target of RM251.7m. No dividends declared as expected.

Results’ highlight. 1Q20 revenue grew by 23%, YoY driving its CNP higher by 261% (low base effect), amid loss contribution of c.RM1.0m from its associate. While there is an improvement in EBITDA margin from 10% to 15% due to lower administrative cost, the lower effective tax rate of 47% vs. 70% is also a major driver behind the improvement in earnings. QoQ, EBIT grew 16%, underpinned by modest growth in revenue (+6%) coupled with improvements in margins on similar reasons above.

Outlook. Despite the challenging operating landscape in the property sector, we believe HUAYANG is on the right track as they continue to derive sales from Penang, Johor and the Klang Valley backed by unbilled sales of RM201.6m with a year visibility. In terms of net gearing, it is down marginally from 0.68x to 0.67x and management remains optimistic of lowering it to the 0.5x level backed by certain projects that is close to completion.

Earnings maintained. Post results, no changes to FY20-21E earnings.

Maintain UNDERPERFORM with unchanged Target Price of RM0.335. Despite its improving outlook, we reiterate our UNDERPERFORM call on HUAYANG due to its short earnings visibility coupled with the earnings uncertainty from its associate, i.e. MAGNA, which could continue to be a drag to its earnings. At current Target Price, our valuation implies Fwd FY20-21E PBV of 0.2-0.2x, which is still at its historical trough levels.

Source: Kenanga Research - 18 Jul 2019