Period

3Q16/9M16

Actual vs. Expectations

9M16 core net profit of RM88.7m came in within expectations, accounting for 79.5% and 76.5% of our and streets’ full-year estimates, respectively.

However, its 9M16 sales of only RM255.4m was behind our and management’s target of RM482.1m and RM500.0m, respectively, as they only managed to rake in RM80.6m worth of sales as the situation has not improved since the beginning of FY16, due to tighter lending criteria from banks.

Dividends

5.0 sen single tier interim declared, as expected. For full-year, we are still expecting a total dividend of 13.0 sen which implies a yield of 7.1%.

Key Results Highlights

YoY, 9M16 core net profit grew 10% to RM88.7m underpinned by steady revenue growth of 4%. The growth in revenue was mainly attributable to the steady progressive billings of its on-going projects and completion of selected phases of Taman Pulai Indah & Taman Pulai Hijauan, Bandar Universiti Seri Iskandar as well as FLEXIS @ One South.

QoQ, Likewise, its 3Q16 core net profit of RM30.2m also saw a growth of 5% mainly due to similar reasons above.

Outlook

As highlighted in our previous report dated 12-Jan-16, we anticipated management to scale back some of its planned launches worth c.RM650m in FY16. As it turned out, management did scale back and have revised lower their sales target for FY16 by 20% from RM500.0m to RM400.0m, indicating that market conditions will remain highly challenging even in the affordable housing space.

Change to Forecasts

Following management’s move in lowering its FY16 sales target by 20% to RM400.0m, we also lowered our FY16-17E sales by 22-23% to RM372.1- RM409.2m as we pushed back some of the launches accordingly. While there are no changes to our FY16E net profit of RM111.6m backed by its unbilled sales of RM530.5m, our FY17E net profit was reduced by 8% to RM106.1m.

Rating

Maintain OUTPERFORM

Valuation

Nonetheless, we are still maintaining our OUTPERFORM call on HUAYANG with an unchanged TP of RM2.20 which is at a 38.0% discount to its DCFdriven RNAV @ 10.0% WACC of RM3.52. At current levels, it is trading at an undemanding valuation of FY16-17E PER of 4.4-4.6x and still offers a highly attractive dividend yield at 7.1-6.7%, respectively, as compared to its peers’ average of 7.5x and yield of 5.6%.

Risks to Our Call

Weaker-than-expected property sales.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments.

Source: Kenanga Research - 21 Jan 2016