• Maintain NEUTRAL with a new MYR0.39 TP from MYR0.37, 5% upside, based on an 85% discount to RNAV. Hua Yang’s 9MFY20 (Mar) earnings fell 29% YoY on its share of loss from associate Magna Prima (MAGNA MK, NR), while 9MFY20 (Mar) earnings missed our but met Street expectations. We remain cautious on the stock due to declining unbilled sales, as Hua Yang continues to bear the brunt of a weak property market – although the possibility of launches in 4QFY20 may act as a much-needed catalyst.
• Earnings below expectations. At 60% and 78% of our and Street full-year estimates, Hua Yang’s 9MFY20 core net profit of MYR6.2m missed our estimate but met the Street’s projection. The 11.6% YoY revenue growth is attributed to the sales of completed properties, coupled with the steady construction progress of ongoing projects. 40% of the revenue for the period came from Astetica Residences and 47% from Meritus Residensi. Earnings for 3QFY20 plunged 74% YoY, but grew 60% QoQ.
• Hua Yang’s associate Magna Prima registered a loss of MYR6.5m, adversely impacting the group, as it is a bigger loss compared to the MYR4m loss in 2QFY19. Magna Prima’s poor performance was due to the slow sales of service apartments and shop offices along Jalan Kuching during the quarter under review. This was very much expected, given the sluggish property market, as well as Magna Prima’s 4QFY19 results announcement in Nov 2019, which suggested a bigger loss for the quarter of MYR12m vs a MYR11m loss in 2QFY19.

• Sales improved by 18% QoQ. Sales for 3QFY20 stood at MYR61.9m, indicating an 18% growth from MYR52.5m in the previous quarter. New sales came largely from Astetica Residence in Selangor and Elemence in Johor, at 20% and 18% of total sales for the quarter. That said, unbilled sales fell to MYR186m as at end Dec 2019 vs MYR183m for 2QFY19 and MYR202m for 1QFY19, which is in line with the slower sales of current ongoing projects.

• In the pipeline. Hua Yang has MYR494m worth of properties for FY20F and expects to launch them in 4QFY20. Key launches include the repackaged Aviary Residence in Puchong (GDV: MYR272m) and Aston Acacia in Bukit Mertajam (GDV: MYR146m). Note that the group still has 468 acres of land with a potential GDV of MYR5.3bn.

• Cutting earnings and keeping TP and recommendation. As results are below expectations, we pare down our earnings forecast by 3-14% on the group’s weaker earnings prospects. After updating unbilled sales and the number of shares into our forecast, our TP rises to MYR0.39, based on a discount to RNAV of 85%. Downside risks to our call: Termination of proposed land deals and higher/lower loan rejection rates. Upside risk: Possibility of 4QFY20 project launches

Source: RHB Securities Research - 3 Mar 2022