Hua Yang Bhd
(Jan 23, 37 sen)
Not rated with an unchanged target price (TP) of 33 sen: Cumulative nine months of the financial year 2020 (9MFY20) core net profit (CNP) of RM6.1 million came in within our and consensus’ full-year estimates at 74% and 77%. Property sales of RM182.5 million are on track to meet our full-year target of RM251.7 million. No dividends declared as expected.

9MFY20 CNP plunged 30% year-on-year with RM6.1 million compared with RM8.7 million in 9MFY19 mainly due to losses from its associate, Magna Prima Bhd, of RM6.5 million compared to a profit of RM3.7 million a year ago, despite higher revenue of RM222.7 million (+12%) achieved in 9MFY20. Quarter-on-quarter, third quarter of FY20 (3QFY20) recorded higher CNP of RM1.5 million (+53%) compared with RM1 million in the preceding quarter, mainly due to: i) higher revenue (+7%) contributed by smooth construction progress for Meritus Residensi, Penang and Astetica Residences, Seri Kembangan; ii) lower losses from associate company (-39%) compared with 2QFY20; and iii) lower effective tax rate of 28% compared with 67% in 2QFY20.

Despite the challenging operating landscape in the property sector, we believe Hua Yang Bhd is on the right track as they continue to derive sales from Penang, Johor and the Klang Valley backed by unbilled sales of RM186 million (as at December 2019) with a year’s visibility and lower inventory of completed properties of RM29.5 million. Net gearing is down marginally from 0.61 times to 0.57 times and management remains optimistic about further lowering it to the 0.5 times level through sale of completed developments and timely completion of ongoing projects.

Post results, we make no changes to our earnings forecast. Due to a lack of investor interest and the reshuffling of our research resources, we are ceasing active coverage for now. Should its outlook improve, we may seek to resume coverage in the future. The stock is “not rated” (from “underperform”), with our last TP of 33 sen, implying forward FY20 price-to-book-value of 0.2 times. Risks to our call include: i) higher-than-expected sales; ii) lower-than-expected administrative costs; iii) changes in real estate policies; and iv) changes in lending environment. — Kenanga Research, Jan 23