Hua Yang Bhd
(July 14, RM1.92)
Maintain buy with an unchanged target price (TP) of RM2.12: Hua Yang’s net earnings of RM30 million for the first quarter of the financial year ending March 31, 2016 (1QFY16) were in line with our full-year forecast and that of the consensus. Net profit improved by 25% year-on-year, albeit a 0.4% decline quarter-on-quarter. We attribute the improvements to the expansion in profit margins due to cost savings and higher-paced construction progress of certain projects. Main project contributors were OneSouth, Sentrio Suites and Metia Residence. We maintain our TP at RM2.12, with a “buy” call predominantly due to the retracement in share price recently. Hua Yang’s recorded new sales of RM82 million for the quarter, which represents 16.5% of the yearly estimated sales of RM500 million, mainly from existing projects like One South, the Klang Valley (RM25 million), Taman Pulai Hijauan, Johor (RM16 million), and Bandar Universiti Seri iskandar, Perak (RM16 million).

Based on our estimates, we expect new sales to pick up with planned launches of RM633 million over the next nine months. Unbilled sales remain strong at RM660.7 million. Out of the total RM1.61 billion ongoing projects launched, 74% or RM1.18 billion worth were sold. The management has targeted new sales of RM500 million for FY16, on the back of planned launches of RM633 million in the affordable segment.

We expect a total dividend of 19.5 sen or a 40% payout ratio. This implies an attractive yield of 10%. We reckon buyers have become more tentative towards purchases post the goods and services tax. While there is sustained interest in the affordable housing segment, the overall sentiment remains cautious. We maintain our FY16 earnings estimate of RM129 million and also our TP at RM2.12, based on five-year historical blended price-earnings ratio and price-to-book value of five times and one times, respectively, premised on FY16 earnings per share. — BIMB Securities Research, July 14

This article first appeared in The Edge Financial Daily, on July 15, 2015.