Period

4Q15/FY15

Actual vs. Expectations

Hua Yang Bhd (HUAYANG)’s FY15 core earnings of RM110.6m came in ahead of both our and market full-year estimates by 8%. The better-thanexpected performance was mainly driven by better progressive billings and good cost control in its ongoing projects, which contributed to better margins.

However, its FY15 sales of RM460.0m was slightly below expectations as it only accounts for 92% of our and management sales target of RM501.3m and RM500.0m, respectively.

Dividends

8.0 sen single-tier final dividend was proposed, as expected. In total, HUAYANG has proposed a total dividend of 13.0 sen, within our expectation and implying a net yield of 6.2%.

Key Results Highlights

YoY, FY15 net profit saw an impressive growth of 35% to RM110.6m, backed by revenue growth of 14%. That aside, its EBITDA margin also saw further improvements by 4.2ppt to 26.7%. The growth in revenue was due to better progressive billings from its on-going projects, especially from the Klang Valley, while lower sales and administrative cost (-7%) contributed to the improvements in margins.

QoQ, 4Q15 net profit came off by 4% to RM29.7m following a 2% dip in revenue. The slight dip in revenue was due to slower construction progress of its existing projects. On the positive front, its net gearing has come off to 0.49x from 0.84x; generally, we are comfortable with developers which net gearing is below 0.5x-0.6x.

Outlook

While we expect the property market to continue to be subdued due to tight lending and GST implementation, we think HUAYANG will be able to maintain its performance, underpinned by its strong unbilled sales of RM702.0m that provides another 1 – 1.5 years earnings visibility.

Change to Forecasts

No changes to our FY16 earnings forecast at this juncture, as we will be reviewing our forecast post its analyst briefing today.

Rating

UNDER REVIEW

Valuation

We are placing HUAYANG “”UNDER REVIEW” (previously, OP; TP: RM2.20 based on 38% discount to its RNAV of RM3.52, sector RNAV discount at 55%) at this juncture, pending the analyst briefing.

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 - 25 May 2015