We  maintain  BUY  on  Hua  Yang,  with  a  lower  TP  of  MYR2.28  (30.3% upside)  in  line  with  our  recent  sector  downgrade  (to  NEUTRAL).  As management is already anticipating slower purchases leading up to the GST, it is better prepared to weather any possible short-term slowdown in the property market.  We  also believe  that  its niche in the affordable housing segment will continue to support earnings growth. 
 
Sector  downgrade.  We  have  downgraded  the  property  sector  to NEUTRAL. We  expect  property  transaction  volumes to decline  3-5% in 2015  on  the  back  of  slower  economic  growth  and  a  high  loan  rejection rate. We also anticipate property prices to stay flat as developers would have  difficulty  passing  on  incremental  costs  in  an  environment  of weakening demand. Buyers/investors and developers are likely to adopt a  wait-and-see  stance  in  monitoring  market  conditions  in  1H15,  as  the impact  of  goods  and  services  tax  (GST)  kicks in.  For the  stocks  under our  coverage,  we  estimate  new  sales  to  drop  by  an  average  10-20% YoY vs -25% YoY in 2014 and +41% YoY in 2013.

Already  anticipating  slower  short-term  sales.  We  previously highlighted  in  our  report  dated  27  Oct  (Hua  Yang:  Landbank Replenishment  Still  The  Main  Priority)  that  its  management  is  already anticipating  that  some  buyers  could  hold  off  on  the  purchase  of properties  until  after  the  GST  comes  into  effect.  It  thinks  that  buyer sentiment will likely be affected due to the uncertainties over the change in property prices post GST. Nonetheless, we believe that its new sales target of MYR500m-600m for FY15 (Mar) is still achievable on the back of new launches worth  MYR1.1bn that have been planned for the year, and  as  most  of  its  products  are  still  priced  reasonably  at  MYR500,000 and  below.  We  also  view  Hua  Yang’s focus  on more  landbanking activities positively, as it would continue to concentrate on the affordable housing  segment  in  new  markets  that  can  yield  reasonable  25-30% gross margins. Its landbanking track record has been prudent.

Maintain BUY. We maintain BUY on Hua Yang as we believe that it will continue  to  fare  better  than  some  of  its  peers,  given  its  affordable product  offerings.  Nonetheless,  given  the  expected  challenging  outlook ahead, we pare down our TP to MYR2.28 (from MYR2.74), based on a larger 25% discount (from 10%) to RNAV.

Financial Exhibits

Financial Exhibits

SWOT Analysis

Company Profile

Hua Yang is a mid-cap property developer with a niche in affordable housing. Its landbank is located in the property hotspots of Klang Valley, Johor and Perak.

Recommendation Chart

Source: RHB