We returned from HUAYANG analysts’ briefing yesterday feeling positive on its prospects which is underpinned by the execution of its strong unbilled sales of RM808m and also planned launches of RM1.1b in FY15. Subsequently, we reduced our FY15 property sales forecast by 13% to RM665m as we adjusted for the timing of its planned launches of RM1.1b. However, we are maintaining our FY15E earnings of RM102.9m as it is well supported by its strong unbilled sales, while introducing our FY16E earnings of RM113.7m. The FY15-16E earnings imply growths of 25%-10%, YoY. We maintain our OP recommendation with an unchanged TP of RM1.96 based on 33% discount to its RNAV of RM2.91. At current levels, its dividend yields remain highly attractive at 7.1%-7.8 for FY15-FY16E, respectively, which is above its peer average of 4.5%.

Execution the key focus ahead. Moving ahead, management has highlighted that the labour issue has been resolved and execution on its unbilled sales of RM808m (1.5 years visibility) would be a primary focus in FY15, to achieve optimal operational efficiencies and also to ensure timely delivery of its eight ongoing projects in Malaysia. To recap, HUAYANG just delivered one of its project namely Parc@One South and is looking to complete another project by 3QCY14, i.e. Gardenz@One South.

Pipeline launches up to RM1.1b. Apart from project execution, HUAYANG has planned up to RM1.1b property launches in FY15 with 45% from Klang Valley and 40% from Johor Bahru. Its Klang Valley projects would be the final phase of One South (GDV: RM185m) and Puchong West (GDV: RM300m), while the sizeable launches from Johor Bahru would be Taman Pulai Hijauan (GDV: RM127m) and Citywoods Service Apartments (GDV: RM216m).

Lowered sales forecast but earnings maintained. Post-briefing, we lowered our FY15E sales forecast by 13% from RM768m to RM665m as we adjust for the timeline of its RM1.1b planned launches in FY15 as more will lean towards 4Q15 and conversion of booking sales into SPA is taking longer due to longer loan approvals. However, our earnings estimates of RM102.9m for FY15E remains unchanged as it is well supported by its unbilled sales of RM808m. Subsequently, we also introduce our FY16E earnings forecast of RM113.7m post-adjustment of our property sales assumptions.

Gearing up for future landbanking activities. In the briefing, management clarified that the proposed issuance of RM250m Sukuk program would be used for future landbanking purposes and ideally drawn down over two years, which would maintain a comfortable gearing level. Based on our estimates, we would expect its net gearing to come down from 0.56x to 0.42x in FY15 should there be no landbanking activities. However, should the management draw down RM125m of the Sukuk program for landbanking, we would expect its net gearing to go up to 0.69x which is within management’s internal limit and broadly within our comfort zone. Nevertheless, we will not be comfortable if the management fully drawdown the whole facility of RM250m as it would push their net gearing up to 1.0x; in fact, we would prefer if the group considers a cash call to manage its balance sheet position. If the group landbanks up to RM125m, this could increase the group’s total remaining GDV by RM830m to RM4.2b, assuming that land cost is 15% of GDV.

Dividend trend to continue. Positively, management guided that they are highly committed to maintain its dividend payout ratio at the 30%-40% of its profit after tax. Based on our conservative dividend payout ratio assumption of 34%, we would be expecting a net dividend of 13.3 sen for FY15 implying a net dividend yield of 7.1%, which is fairly decent as compared to its peer average of 4.5%. To recap, HUAYANG has proposed a total net dividend of 12 sen for FY14 which implies 6.4% dividend yield.

OUTPERFORM maintained. We are reiterating our OUTPERFORM recommendation on HUAYANG with an unchanged TP of RM1.96 which is at a 33% discount to its DCF-driven RNAV @ 10% WACC of RM2.91, as we believe that HUAYANG would still be able to enjoy resilient demand from the affordable housing market. At current levels, its dividend yield remains highly attractive at 7.1%-7.8% for FY15-FY16E, respectively, which is above its peer average of 4.5%.

Source: Kenanga