We  initiate  coverage  on  Hua  Yang  with  a  BUY  call  and  MYR2.76  FV. Despite the re-rating  in its stock  over the past one year, we still find its 5.1x  FY14F  P/E  undemanding.  Given  the  company’s  niche  in  the affordable  housing  segment,  it  should  be  relatively  unfazed  by  the recent  tightening of  regulations.  The  stock’s  medium-term  growth will be driven by its strategic landbank in Puchong in Selangor.

• Defending its niche.  Hua Yang  continues to strengthen its presence as a  quality  developer  in  affordable  housing  (MYR500,000  per  unit  and below  segment).  The  outstanding  GDV  of  the  company’s  landbank, currently  concentrated  in  the  Klang  Valley,  Perak  and  Johor,  is  about MYR4.12bn.  This  includes  MYR1bn  of  GDV  slated  for  launch  in  FY14 (FYE  March).  Hua  Yang  will  continue  to  target  local  first-time  home buyers, especially those in the  25-40  years age group,  which makes up about 46% of Malaysia’s population.
• New launches to stimulate FY14 earnings growth.  Despite the recent tightening  measures,  management  is  confident  of  delivering  about MYR600m in  new sales in FY14.  This will be underpinned by MYR791m of launches planned  for 2HFY14.  Among the most  highly-anticipated  of its  new launches is the Sentrio Suites high-rise project in Desa Pandan, Kuala Lumpur with a GDV of MYR213m. Launches from its flagship One South project in Seri Kembangan in Selangor, are also expected to boost FY14 sales. The company’s current unbilled sales total MYR558.9m.
• Clear  long-term  earnings  visibility.  With  about  MYR3.05bn  in  future GDV to be launched beyond FY14, we believe that Hua Yang’s earnings will be sustained over the next  2-3  years.  The  main earnings driver will likely be its Puchong land,  which has an estimated  GDV of MYR1.54bn. This  development  will  replace  One  South,  which  has  26.5%  of  GDV remaining.
• Initiate coverage with BUY. We value Hua Yang at MYR2.76, based on a 20% discount to RNAV. The stock’s valuation is still undemanding at a 5.1x  FY14  P/E.  Given  the  company’s  entrenched  position  in  the affordable  housing  segment,  we  believe  that  it  will  stand  tall  amid  the anticipated weakening demand for property over the next 3-6 months  as a result of policy curbs.

Affordable Housing Still The Way to Go

•  The target market is the first-time home buyer, aged between 25-40 years.
•  FY14 earnings to be driven by MYR1bn worth of new launches

Maintaining  its  niche.  Hua  Yang  continues  to  grow  its  presence  as  a  quality developer in the affordable housing segment. Its landbank  is  currently concentrated in the Klang Valley, Perak and Johor. It has an outstanding GDV of about MYR4.1bn, which  includes  MYR791m  of launches planned for 2HFY14.  Going forward, we see strong growth potential for Hua  Yang, given its major upcoming launches in hotpots such  as  Desa  Pandan,  Kuala  Lumpur;  Shah  Alam,  Selangor;  and  Johor  Bahru, Johor. The company’s long-term strategy is to focus on developing houses within the MYR400,000-500,000 price range mainly.

Zooming  in  on  local  first-time  home-buyers.  The  local  first-time  home  buyer, especially those aged  in the 25-40 bracket,  is  Hua  Yang’s key target market for its projects. Currently, 60% of its buyers are within this age group, which make up about 46% of the total Malaysian  population.  These  buyers  are mainly  concentrated in  the Klang  Valley,  Johor  and  Perak  –  essentially  where  the  company  has  a  presence. Furthermore,  workers  within  this  age  group  make  up  about  35-55%  of  the  total 
workforce in these states, signalling the need for affordable housing, especially when house prices remain sticky downwards.  As such,  Hua Yang’s market position in this affordable housing segment is well-entrenched.

FY14: new launches, new aims.  Despite the lack of new launches  in 1HFY14 due to  the  General  Election  overhang,  Hua  Yang  was  able  to  record  a  decent MYR197.7m in  new sales, buoyed  by its flagship One South project.  Management is confident  of  delivering  about  MYR600m  of  new  sales  in  FY14  (vs  MYR402m  in FY13),  underpinned  by  its  upcoming  launches.  Unbilled  sa les  remain  healthy  at MYR558.9m, as at end-1HFY14.

Sales are expected to pick up in 2HFY14, as most new projects/phases are slated for launch  only  from  end-2QFY14  onwards  (after  the  Hari  Raya  celebration  period). About MYR690m, or 63.9% of Hua Yang’s total GDV due for launches in FY14 will be from  new  projects.  These  include  the  highly-anticipated  Sentrio  Suites  in  Desa Pandan and Metia Residences in Shah Alam, both of which are high-rise projects in the Klang Valley. Other notable ones in FY14 include a new high-rise development at Jalan Abdul Samad in Johor Bahru, which with a total GDV of about MYR208m.

Source: RHB