Hua Yang announced that it has entered into conditional agreementsfor the acquisition of 8.59 acres of land in Prai for MYR45m (or MYR120 psf). Maintain BUY, with revised TP of MYR2.25 (18% upside). The mixed development project is estimated to have a GDV of MYR311m. We are positive on the prospects of the land as it is located in a matured area, which should bode well for Hua Yang’s target market.

Proposed new land acquisition in Prai. Hua Yang announced that is has signed a conditional Share Sale Agreement (SSA) to acquire the entire paid up share capital of G Land Development SB (GLD) for total purchase consideration of MR20m (including the assumed liability ofMYR3.5m). Hua Yang has also signed a conditional sale and purchase agreement (SPA) with GIM Standard Development SB (GIM) for the purchase of six parcels of land at Jalan Baru, Prai, with total acreage of about 8.59 acres, for total consideration of MYR25m. The SPA will only be executed upon the completion of GLD’s SSA. As such, the total acquisition cost of MYR45m will translate into a psf land cost of about MYR120. We believe that the price is fair, given that the land already has an approved development order (DO), a plot ratio of 4x and as the land cost is only 15% of the estimated GDV of MYR311m. The acquisition will be funded by a mix of debt and cash. We believe that Hua Yang will draw down a portion of its MYR250m sukuk facility for the acquisition. Barring any unforeseen circumstances, the deal is expected to be finalised by end-FY16 (Mar).

Positive prospects for the land. We note that the land deal is in line with Hua Yang’s expansion plans into Mainland Penang. We are positive on the prospects given that the land is situated within a matured area, which should bode well for Hua Yang’s target market. We expect the products to be priced at MYR500,000 and below .

Maintain BUY. We make no changes to our FY16-18 earnings forecasts. We raise our TP slightly to MYR2.25 (from MYR2.20) after adjusting for the GDV from the Prai land acquisition and the termination of its Bukit Mertajam land deal into our RNAV calculation. Our TP is based on an unchanged 30% discount to RNAV. Although there is still no re-rating catalyst for the property sector for now, we continue to rate Hua Yang with a BUY, given its undemanding valuation of 4.5x FY16FP/E and decent dividend yield of 7%. Key risks to our call include: i) the termination of new proposed land deals, ii) prolonged weak market sentiment, and iii) higher loan rejection rates.