Company Update 29 October 2013 Hua Yang Berhad OUTPERFORM Price: RM2.11 Affordable Housing Advantage Target Price: RM2.91 HUAYANG held a briefing yesterday which reaffirmed our positive view based on these factors: (i) stronger billings in 2H14, which will be driven mainly by projects that are near to completion such as Parc@OneSouth, and (ii) immediate billings upon SPA for some of its upcoming projects as the substructure works are already underway. We believe our RM620.0m sales target for FY14E is achievable, buoyed by more than RM1.0b launches in the pipeline for the year and current unbilled sales of RM559m. Maintained TP of RM2.91, while maintaining our stance that it should be on parity with our DCF-driven RNAV. Re-emphasizing targets will be met. Given the two consecutive quarters of underperformance, the management re-emphasized that their plans remain intact to achieve revenue and sales targets of c.rm0.5b and RM0.6b for FY14, respectively. In our earlier report dated 19 July, we mentioned that 2Q14 was expected to see QoQ improvements and true enough revenue improved 25.8% QoQ. Nevertheless, PBT was pretty flat with 0.3% QoQ growth. Management also guided that 2H14 will come in stronger on the back of stronger unbilled sales of RM559m and more than RM1b worth of launches in FY14. YTD, the company has launched RM288m worth of ongoing projects such as Taman Pulai Indah, Taman Pulai Hijauan and Bandar Universiti Seri Iskandar and soft launched Phase 5 of OneSouth, Sentrio Suites and Metia Residence worth RM463m, with promising bookings. Moreover, the company has already commenced piling and substructure works for Sentrio Suites and Metia Residences. Hence, this would mean immediate billings of c.20% when they rake-in SPA sales from these projects by year-end. Meanwhile, there are RM328m worth of new project launches lining up from now onwards to 1QCY14. FY14E sales intact. Total RM1.0b GDV worth of projects will be launched this year which includes six new projects with total GDV of RM690m (e.g. Sentrio Suites, Metia Residences, The Gardens@Polo Park, Jalan Abdul Samad@Johor, Ridgewood@Bercham Permai and Anjung Bercham Megah, Perak). The breakdown between Klang Valley and other regions will be 43:57. Assuming a conservative takeup rate of 70% on the RM1.0b GDV, we believe our sales projections for FY14E of RM620m (+54% YoY) are realistic. However, we revised down our GP margin for FY14E by 1ppt to 32% due to higher construction cost resulting from labour shortage. Management highlighted their intention to maintain GP above 30% and believed that the labour cost issue would be moderate after completion of public infrastructure, typically the biggest component of any projects. HUAYANG continues to be one of our favourite property developers as it is one of the few to focus on the affordable housing market which will enjoy resilient demand for years to come. We also believe that it will not be impacted by the recent Budget 2014 property cooling measures as HUAYANG does not have any exposure to DIBS. We reckon the pool of mass home buyers will continue to grow prior to GST implementation as affordability becomes an overbearing issue. Maintain earnings estimates for FY14E and FY15E of RM77m and RM112m respectively. We believe the estimates for FY14E is achievable supported by: (i) stronger billings in 2H14, which will be driven mainly by projects that are near to completion such as Parc@OneSouth, (ii) substructure works are underway for some of the upcoming new project launches, which mean billings will be immediate upon SPA sales. Reiterate OUTPERFORM with unchanged TP of RM2.91. We maintain our stance that its TP should be on parity with its DCF-driven RNAV @ 10% WACC as we believe its ability to capitalise on its landbanks will become imminent as property prices continue to trend upwards coupled with the growing need for mass housings. Share Price Performance 2.60 2.10 1.60 1.10 KLCI 1,818.39 YTD KLCI chg 7.7% YTD stock price chg 72.6% Stock Information Bloomberg Ticker HYB MK Equity Market Cap (RM m) 557.0 Issued shares 264.0 52-week range (H) 2.51 52-week range (L) 1.13 3-mth avg daily vol: 552,304 Free Float 62% Beta 1.3 Major Shareholders HENG HOLDINGS SDN 29.7% POH MENG CHAM 6.5% MOOK LEONG HO 1.6% Summary Earnings Table FYE Mar (RM m) 2013A 2014E 2015E Turnover 408.7 503.4 724.2 EBIT 95.4 104.9 151.6 PBT 95.3 104.8 151.6 Net Profit (NP) 70.5 77.5 112.0 Core NP 70.5 77.5 112.0 Consensus (NP) 85.9 116.7 Earnings Revision - - EPS (sen) 26.7 29.4 42.4 EPS growth (%) 30 10 45 NDPS (sen) 9.9 8.8 12.7 BV/Share (RM) 1.27 1.49 1.82 Core PER (x) 7.9 7.2 5.0 Price/BV (x) 1.7 1.4 1.2 Net Gearing (x) 0.3 0.4 0.2 Dividend Yield (%) 4.7 4.2 6.0 Teo Joo Tse jtse@kenanga.com.my +603 2713 2292 PP7004/02/2013(031762)
HUA YANG Berhad 29 October 2013 RNAV Projects Remaining GDV Stake Assumed Duration Remaining GDV Remaining NP WACC DCF Value (%) (Year) (RM'm) (%) (RM'm) One South, Selangor 100% 3 254 37.1 10% 30.5 Bandar Universiti Seri Iskandar, Perak 100% 9 765 126.2 10% 79.4 Taman Pulai Indah, JB 100% 2 91 12 10% 10.4 Senawang Link, NS 100% 4 54 7.6 10% 5.4 Taman Pulai Hijauan, JB 100% 5 317 37.4 10% 28 Metia Residences, Shah Alam 100% 3 156 18.4 10% 15.1 Sentrio Suites, Desa Pandan 100% 3 213 25.1 10% 20.6 Jalan Abdul Samad, JB 100% 4 208 24.5 10% 19.2 Puchong, Selangor 100% 8 1536 231.7 10% 112.9 The Gardens, Polo Park, JB 100% 4 54 6.4 10% 5 Anjung Bercham Megah 100% 3 10 1.3 10% 0.9 Jalan Stulang Darat, Johor 100% 3 94 11.1 10% 8.3 Ridgewood, Bercham Permai 100% 3 84 9.9 10% 8.1 Sri Kembangan 100% 3 285 33.6 10% 18.7 Sub-total On-going & New projects: 4121 582.3 362.6 Unbilled sales as of 2Q13 One South, Selangor 100% 3 368 53.8 10% 44.2 Bandar Universiti Seri Iskandar, Perak 100% 9 45.9 9.3 10% 5.9 Taman Pulai Indah, JB 100% 2 53.6 7.1 10% 3.2 Senawang Link, NS 100% 4 0 0.0 10% 0 Taman Pulai Hijauan, JB 100% 5 62.8 7.4 10% 5.5 Sub-total Unbilled Sales 530.3 77.6 58.8 Revised Net Asset Value 421.4 Shareholder's Funds as of 30 Jun 13 346.8 Total RNAV 768.2 RNAV per share (RM) MYR 2.91 No of paid-up shares ('m) 264 Page 2 of 5
HUA YANG Berhad 29 October 2013 Income Statement Financial Data & Ratios FY Mar (RM m) 2011A 2012A 2013A 2014E 2015E FY Mar (RM m) 2011A 2012A 2013A 2014E 2015E Turnover 188.9 306.4 408.7 503.4 724.2 Growth (%) EBITDA 36.1 74.2 94.4 104.4 150.9 Turnover 82.4 62.2 33.4 23.2 43.9 Depreciation 0.4 0.3 1.0 0.6 0.7 EBITDA 114.4 105.8 27.2 10.6 44.6 Operating Profit 36.4 74.5 95.4 104.9 151.6 Operating Profit 111.1 104.5 28.1 9.9 44.5 Interest Income -1.1-0.8-0.1-0.1-0.1 PBT 110.9 108.5 29.2 10.0 44.5 Interest Expense 0.0 0.0 0.0 0.0 0.0 Net Profit 109.1 106.4 30.0 10.0 44.5 Associate 0.0 0.0 0.0 0.0 0.0 Exep. Items 0.0 0.0 0.0 0.0 0.0 PBT 35.4 73.8 95.3 104.8 151.5 Taxation -9.2-19.1-24.8-27.3-39.5 Profitability (%) Minority Interest 0.1-0.5 0.0 0.0 0.0 EBITDA Margin 19.1 24.2 23.1 20.7 20.8 Net Profit 26.3 54.2 70.5 77.5 112.0 Operating Margin 19.3 24.3 23.4 20.8 20.9 PBT Margin 18.7 24.1 23.3 20.8 20.9 Core Net Margin 13.9 17.7 17.2 15.4 15.5 Balance Sheet Effective Tax Rate -26.8-26.3-26.1-26.1-26.1 FY Mar (RM m) 2011A 2012A 2013A 2014E 2015E ROE 12.7 22.3 23.5 21.3 25.6 Fixed Assets 155.5 214.0 382.8 443.0 389.6 ROA 7.9 13.5 13.0 11.2 14.1 Intangible Assets 23.6 22.9 22.3 22.3 22.3 Other FA 9.1 6.0 6.1 6.1 6.1 Inventories 4.2 4.9 6.5 9.1 12.1 DuPont Analysis Receivables 87.8 107.7 79.4 137.9 228.2 Net Margin (%) 13.9 17.7 17.2 15.4 15.5 Other CA 70.5 66.4 107.1 107.0 107.1 Assets Turnover (x) 0.6 0.8 0.8 0.7 0.9 Cash 6.3 25.2 29.5 20.7 76.7 Leverage Factor (x) 1.6 1.7 1.8 1.9 1.8 Total Assets 357.0 447.1 633.7 746.1 842.0 ROE (%) 12.7 22.3 23.5 21.3 25.6 Payables 47.9 56.5 155.8 131.2 157.1 Leverage ST Borrowings 19.5 6.4 2.4 6.0 6.0 Debt/Asset (x) 0.20 0.22 0.18 0.25 0.20 Other ST Liability 6.5 7.0 10.8 11.0 11.7 Debt/Equity (x) 0.33 0.37 0.34 0.48 0.36 LT Borrowings 53.5 90.8 112.8 182.6 166.3 Net Cash/(Debt) 67 72 86 168 96 Other LT Liability 8.6 18.1 17.5 20.9 19.7 Net Debt/Equity (x) 0.30 0.27 0.26 0.43 0.20 Minorities Int. 1.7 2.2 0.0 0.0 0.0 Net Assets 219.3 266.1 334.5 394.4 481.2 Valuations EPS (sen) 10.0 20.5 26.7 29.4 42.4 Share Capital 108.0 144.0 198.0 264.0 264.0 NDPS (sen) 2.3 6.8 9.9 8.8 12.7 Reserves 111.3 122.1 136.5 130.4 217.2 BV/share (RM) 0.83 1.01 1.27 1.49 1.82 Equity 219.3 266.1 334.5 394.4 481.2 PER (x) 21.2 10.3 7.9 7.2 5.0 Net Div. Yield (%) 1.1 3.2 4.7 4.2 6.0 Cashflow Statement P/NTA (x) 2.5 2.1 1.7 1.4 1.2 FY Mar (RM m) 2011A 2012A 2013A 2014E 2015E EV/EBITDA (x) 17.3 8.5 6.8 6.9 4.3 Operating CF 3.5 56.4 130.1-63.6 54.1 Investing CF -2.3-79.9-174.0-61.3 52.0 Financing CF 0.2 41.7 45.5 116.1-50.0 Change In Cash 1.5 18.1 1.6-8.9 56.0 Free CF 6.1-2.3-43.0-124.9 106.0 Fwd Core PER Band Fwd PBV Band Page 3 of 5
HUAYANG Berhad 29 October 2013 NAME Price (28/10/13 ) (RM) (RMm) Mkt Cap PER (x) Est. NDiv. Yld. 3 4 FY14/1 5 Historica l ROE P/B V (%) (%) (x) 3 Net Profit (RMm) 4 FY14/1 5 3 NP Growth 4 NP Growth Target Price (%) (%) (RM) Rating DEVELOPERS UNDER COVERAGE UEM Sunrise 2.50 10,874 24.1 19.7 16.5 1.0% 8.8% 1.9 448.4 549.6 656.3 22.6% 19.4% 3.05 OUTPERFORM SP Setia 3.20 7,868 20.0 18.8 15.9 2.3% 10.5% 1.4 393.8 418.1 494.8 6.2% 18.3% 3.60 MARKET PERFORM IJM Land* 2.79 4,349 20.1 13.7 10.8 1.8% 8.5% 1.3 196.1 289.3 365.6 47.6% 26.4% 3.60 OUTPERFORM UOA Development* 2.22 2,974 9.4 8.6 6.7 5.9% 15.5% 1.2 301.3 327.0 422.1 8.5% 29.1% 2.30 MARKET PERFORM Mah Sing Group 2.35 3,262 11.5 9.6 7.9 3.9% 19.9% 1.7 230.6 275.1 335.5 19.3% 22.0% 2.56 OUTPERFORM Scientex Berhad 5.77 1,276 12.0 8.6 7.3 4.1% 17.5% 1.8 110.3 155.0 182.8 40.5% 17.9% 6.28 OUTPERFORM Crescendo 3.44 783 16.6 11.7 9.4 4.4% 9.7% 1.5 55.7 80.2 100.0 43.9% 24.7% 4.00 OUTPERFORM Hua Yang 2.11 557 7.9 7.2 5.0 4.2% 23.5% 1.4 70.5 77.5 112.0 10.0% 44.5% 2.91 OUTPERFORM Hunza Properties* 2.35 494 21.8 21.1 17.8 1.9% 26.7% 0.6 19.7 20.3 24.0 3.1% 18.5% 2.40 MARKET PERFORM * Core NP and Core PER CONSENSUS NUMBERS BERJAYA LAND BHD 0.83 4,130 32.2 83.0 51.9 n.a. 2.4% 0.8 128.4 49.8 79.6-61.2% 60.0% 0.93 BUY SUNWAY BHD 2.88 4,964 7.5 12.6 11.5 2.2% 16.4% 1.1 665.5 393.0 432.6-41.0% 10.1% 3.59 BUY IGB CORPORATION BHD 2.68 3,675 21.7 17.9 17.2 2.7% 4.6% 0.9 169.2 205.7 213.9 21.6% 4.0% 3.82 NEUTRAL YNH PROPERTY BHD 1.78 750 15.4 12.3 11.1 2.2% 5.7% 0.9 48.6 61.1 67.4 25.6% 10.3% 2.01 NEUTRAL YTL LAND & DEVELOPMENT BHD 0.98 813 35.6 51.6 44.5 n.a. 2.6% 0.8 22.8 15.8 18.2-30.9% 15.8% 1.40 BUY GLOMAC BHD 1.16 844 8.0 5.7 5.4 4.9% 13.3% 1.0 105.3 149.1 154.9 41.6% 3.9% 1.30 BUY KSL HOLDINGS BHD 2.16 835 4.3 5.1 5.3 2.3% 17.7% 0.7 195.9 163.4 157.3-16.6% -3.8% 2.28 NEUTRAL PARAMOUNT CORP BHD 1.54 520 9.7 9.1 8.1 5.8% 7.7% 0.7 53.7 57.4 64.2 7.0% 11.8% 1.71 BUY IVORY PROPERTIES GROUP BHD 0.62 274 48.8 12.3 8.8 n.a. 10.5% 0.7 5.6 22.3 31.2 296.8% 40.0% n.a. BUY TAMBUN INDAH LAND BHD 1.43 482 9.3 9.1 7.0 5.5% 21.3% 1.9 51.9 53.0 69.2 2.1% 30.6% 1.85 BUY Page 4 of 6
Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM : A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM : A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM : A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT : A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL : A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT : A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenangaresearch.com Chan Ken Yew Head of Research Page 5 of 6