Post-briefing, we downgrade Hua Yang to NEUTRAL (from Buy) with  an unchanged  RNAV-based  TP  of  MYR2.28  (1.4%  upside),  in  light  of  the challenging  property  market.  Take-ups  for  new  launches  have  been slow, and we expect this trend to continue  in the near future.  We also expect Hua Yang to be more  aggressive  with its landbanking activities in FY16 given its target to replenish up to MYR5bn of GDV.

Slow take-ups for new launches. During its briefing yesterday, we note that  take-ups  for  Hua  Yang’s  new  launches  have  been  rather  slow, although total new sales have improved by 35.8% QoQ.  The final phase of One South (GDV: MYR195m), has only recorded  a take-up  of about 20-25%  for  the  units  that  were  launched  during  4QCY14.  Its  high-rise Citywoods project in Johor, which is  located near  Danga Bay,  has also seen a slow take-up of only 11% since its launch in Sep 2014 despite its competitive pricing of MYR500-550 psf.  Management has also indicated that loan rejection rates are higher than last year’s due to more stringent bank  requirements.  We  expect  take-ups  to  continue  to  be  slow  in  the near term due to uncertainties over the impact of the goods and services tax (GST)  as well as cautious market sentiments.  No new launches are expected in 4QFY15.

Puchong West  set to be  launched  in FY16.  Hua Yang’s new  flagship project,  the  29-acre  Puchong  West  project  is  scheduled  for  launchsometime in 1HFY16. The  MYR1.35bn development will  be located next to  the  Damansara-Puchong  Expressway  (LDP)  and  is  less  than  1km away from the proposed LRT line extension.  As with its other projects, Hua Yang will be targeting to price most of its units at MYR500,000 and below.  On  its  landbank  replenishment  plans,  management  is  still targeting  to  replenish  up  to  MYR5bn  of  GDV  over  the  next  two  years.Given  that  it  has  yet  to  reach  even  10%  of  its  target,  we  expect  the company to be more aggressive in landbanking going into FY16.

Earnings  forecasts.  We  revise  our  FY15-17  earnings  forecasts  by  8-12%  after  revising  our  margin  assumptions  in  line  with  management’sguidance. Earnings growth is expected to slow down going forward.

Downgrade to NEUTRAL.  Our TP is maintained at MYR2.28, based on an unchanged 25% discount to RNAV. However, given the recent price rally,  we  believe  that  the  stock  is  now  fairly  valued,  and  as  such  we downgrade the stock to NEUTRAL (from Buy). 

Source: RHB