1QFY15 results were in line with expectations. The company chalked updecent new sales of MYR81.9m in 1QFY15, and we expect strongersales in the upcoming quarters. Unbilled sales remained resilient atMYR756.4m. In view of the expected demand recovery and strong re rating of its peers, we believe the stock will catch up in valuations. Weraise our FV to MYR2.70 (from MYR2.40) and maintain BUY. 

Within expectations. Hua Yang’s 1QFY15 net profit of MYR23.9m (+94.4% y-o-y; -36.7% q-o-q) was within our and consensus estimates. Y-o-y revenue growth was driven by progress billings from its key launches in FY14 such as Greenz@One South, Sentrio Suites and Metia Residences. Its net profit margin remained stable, at about 17.5%.

Decent sales to start the year. Despite the lack of new launches during the quarter, the company managed to chalk up decent new sales of MYR81.9m, mainly attributable to ongoing township projects in Johor and Senawang. Given the number of new launches in the pipeline, we expect sales to be stronger in the upcoming quarters, and likely to reach management’s MYR500m-600m target for FY15. Meanwhile, its unbilled sales of MYR756.4m (4QFY14: MYR808.1m) remained resilient, and should buoy earnings growth over the next 1-2 years. Net gearing wasstable at 0.52x during the quarter, although we note that this may potentially increase, as Hua Yang has indicated that it plans to drawdown its MYR250m sukukfacility for future land acquisitions. 

Earnings forecasts. Unchanged, pending a briefing later today.

Maintain BUY. We maintain BUY on Hua Yang, with a higher FV of MYR2.70 (from MYR2.40), based on a lower 10% discount (from 20%) to RNAV. Note that the stock has appreciated by about 25% since our 23 May report, “Maintaining Its Momentum”. However, in view of the sharp re-rating of its peers in the affordable housing segment such as Tambun Indah (TILB MK, BUY, FV: MYR3.00) and Matrix Concepts (MCH MK, BUY, FV: MYR5.00) – which are currently trading at 8x-9x FY15F P/Es –we believe Hua Yang’s valuation will catch up with that of its peers. We expect the middle-range housing segment to possibly be the first to experience a strong recovery in demand.

Source: RHB