Hua Yang Bhd offers good buying opportunity as it is currently trading at an historical low of 0.2x book value (BV) or 8.4x FY21 PER. We expect there to be earnings recovery supported by unbilled sales of RM183m. BUY with a target price of RM0.49 based on 11.5x FY21 PER as per the Bursa Malaysia Property Index translating to almost 0.3x BV against the sector’s average of 0.6x.

Hua Yang which has over 40 years of track record in the affordable housing development is carving out a niche position as one of the renowned mid-size affordable home developers in Malaysia. Over the years it has completed over RM4.6bn worth properties across the nation, in Klang Valley, Johor, Perak, Negeri Sembilan and Penang. Among their flagship projects are Astetica Residences in Seri Kembangan, Aviary Residence in Puchong as well as Erica and Freesia located in Bandar Universiti Seri Iskandar, a 777 acres integrated university township with a total GDV of RM1.44bn.

Moving forward, we believe Hua Yang’s earnings visibility is anchored on their unbilled sales of RM183m in addition to stronger momentum on new launches in 2HFY20. Hua Yang targets to launch RM494m worth of new projects in FY20. In addition to that, inventory of completed properties has reduced to RM34.3m as at Sept 2019 from RM66.5m a year ago.

Despite a challenging market for property developments, we are of the view demand for affordable houses would remain strong, underpinned by the growing young population. Furthermore, Hua Yang has a strong portfolio of landbank in key regions with GDV of RM5.3bn. Potential launches in Klang Valley totalling RM2.85bn include the RM800m GDV project situated in Kajang Heights.

Hua Yang has been focusing on beefing up its balance sheet and cash flows, with net gearing improving marginally from 0.70x to 0.61x while targeting to lower the ratio towards 0.5x - 0.6x by emphasising on the near-completion projects. We expect upcoming launches in 2H 2020 to drive sales with double digit EPS growth from low base.

Source: Rakuten Research - 6 Jan 2020