9MFY20 CNP of RM6.1m came in within our/consensus’ full year estimates at 74%/77%. Property sales of RM182.5m are on track to meet our full-year target of RM251.7m. No dividends declared as expected. No changes to FY20-21E earnings. As we are ceasing active coverage, the stock is now a NOT RATED with our last TP of RM0.330.

Within expectation. 9MFY20 CNP of RM6.1m came in within our/consensus’ full-year estimates at 74%/77%. Property sales of RM182.5m are on track to meet our full-year target of RM251.7m. No dividends declared as expected.

Results’ highlight. 9MFY20 CNP plunged 30% YoY to RM6.1m compared to RM8.7m in 9MFY19 mainly due to losses from its associate, Magna Prima of RM6.5m compared to profit of RM3.7m a year ago, despite higher revenue of RM222.7m (+12%) achieved in 9MFY20. QoQ, 3QFY20 recorded higher CNP of RM1.5m (+53%) compared to RM1.0m in the preceding quarter, mainly due to: (i) higher revenue (+7%) contributed by smooth construction progress for Meritus Residence, Penang and Astetica Residence, Seri Kembangan, (ii) lower losses from associate company (-39%) compared to 2QFY20, and (iii) lower effective tax rate of 28% compared to 67% in 2QFY20.

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 RM186m (as at Dec 2019) with a year’s visibility and lower inventory of completed properties of RM29.5m. Net gearing is down marginally from 0.61x to 0.57x and management remains optimistic of further lowering it to the 0.5x level through sale of completed developments and timely completion of ongoing projects.

Cease coverage. Post results, we make no changes to our earnings forecast. Due to a lack of investors’ interests and the reshuffling of our research resources, we are ceasing active coverage for now. Should its outlook improve, we may seek to resume coverage in the future. The stock is Not Rated (from UNDERPERFORM), with our last TP of RM0.330 implying Fwd. FY20 PBV of 0.2x.

Risks to our call include: (i) higher-than-expected sales, (ii) lower than-expected administrative costs, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 23 Jan 2020