Friday, 23 January 2015

Huayang: Affordable Homes To Lead The Way

Huayang FY15Q3 Financial Result

Huayang FY15Q3 FY15Q2 FY15Q1 FY14Q4 FY14Q3
Revenue 155.5 139.5 136.5 198.3 129.9
Gross Profit 59.3 45.2 43.2 65.9 47.2
Gross% 38.1 32.4 31.6 33.2 36.3
PBT 43.2 35.2 32.6 51.6 27.5
PBT% 27.8 25.2 23.9 26.0 21.2
PAT 30.9 26.0 23.9 37.8 19.7

Total Equity 449.4 436.9 410.9 387.0 362.4
Total Assets 877.3 828.0 811.0 824.2 764.0
Trade Receivables 73.3 68.1 62.6 75.6 51.6
Prop dev cost 175.5 159.5 145.1 142.2 142.0
Inventories 9.8 9.8 10.0 6.1 5.2
Other Current Assets 180.3 157.0 165.6 162.7 150.7
Cash 44.1 43.9 27.0 34.1 16.5
Bank Overdraft 14.4 10.9 15.0 4.9 8.6

Total Liabilities 427.9 391.1 400.0 437.3 401.6
Trade Payables 118.2 120.4 134.5 167.3 99.8
ST Borrowings 82.2 75.9 74.2 60.7 63.2
LT Borrowings 187.4 161.0 165.2 188.7 203.9

Net Cash Flow -0.5 2.7 -18.2 -0.4 -21.7
Operation 71.1 58.1 26.1 11.1 -51.8
Investment -50.7 -23.9 -11.2 -110.8 -96.8
Financing -20.8 -31.5 -33.2 99.3 126.8

EPS 11.72 9.84 9.07 14.32 7.46
NAS 1.70 1.65 1.56 1.47 1.37
D/E Ratio 0.53 0.47 0.55 0.57 0.72

As expected, Huayang posted a great quarterly result for its FY15Q3, in which revenue and net profit improve 11.5%  & 18.8% respectively QoQ.

Its 9MFY15 net profit of RM80.9mil is 82.2% more than previous year's corresponding period.

Apart from this, gross profit margin at 38% & PBT margin at 28% also reach record high.

Unbilled sales pick up slightly from RM717.9mil last quarter to RM733.3mil, as sales in Q3 surged 35.8% QoQ to RM149.8mil.

Sales achieved in Q2 & Q1 are RM110.3mil & RM81.9mil respectively.

Total sales after 9MFY15 is RM342mil, which is RM168mil short of its latest sales target of RM510mil for FY15.

Recent history suggests that Huayang kept its words by accomplishing mission impossible in achieving FY14 total revenue of above RM500mil.

Can Huayang do it again this time?


It certainly looks tough as RHB analyst reported that Huayang's sales performance of its newly-launched high-rise projects in FY15Q3 (Oct14-Dec14) is very discouraging.

Property market sentiment is poor and loan rejection rate is high at the moment.

Final phase of One-South with GDV RM195mil has just achieved 20-25% sales for units launched in Q3FY15, while Citywoods (GDV RM216mil) has only 11% take-up rate since launched in Sep14.

As its Q3 sales and unbilled sales pick up, initially I thought that most of it should be contributed by Citywoods...

So, its more affordable landed properties in Taman Pulai Hijauan & Bandar Universiti Seri Iskandar must be selling well I guess.

Its Puchong West development is expected to be launched soon in 1HFY16.

Sales target for FY16 is set at RM529mil, while it expects its total revenue to reach RM800mil in FY18.

       The Gardens @ Polo Park

Despite commendable operating cash flow, net debt to equity ratio increases to 0.53x compared to 0.47x in previous quarter as most cash are spent in land acquisition and dividend payment.

It still has not utilize its RM250mil Sukuk Murabahah Programme for further land acquisition.

Huayang proposes a first interim dividend of 5sen for FY15 which is similar to previous 2 years' corresponding periods.

I made a mistake earlier as I thought that Huayang has a minimal dividend payout policy of 40%. It seems like it does not have a fixed policy but plans to pay at least 25% back to shareholders.

I think Huayang should be able to register RM105mil net profit for its FY15, with a guesstimated EPS of 39.8sen. 

Base on fair PE of 8x, target price will be revised to RM3.18.

If it pays only 25% as dividend because of current high gearing, it will pay about 10sen dividend or 4.5% yield at share price of RM2.20.

       Upcoming integrated commercial & residential project opposite The Mines

Huayang's target price by analysts are low at RM2.20 (Kenanga) & RM2.28 (RHB) using the RNAV valuation method.

In order to increase its RNAV, Huayang needs to increase its total GDV by replenishing its landbank.

I will continue to hold Huayang's shares at the moment, and hope that it can close a good land deal soon.

Tuesday, 20 January 2015

Inari Rights Go Ex-ed

Inari's rights issue (8:1) + free warrants (1 rights share : 1 warrant) are ex-ed today. Yesterday's closing price was at RM2.87.

So Inari's share price is adjusted to RM2.64 today, which is 1sen lower than RM2.65 calculated by RHB.

How to calculate the ex-ed & adjusted share price?

As we know, we actually get nothing free from corporate exercises like free warrants, bonus issues etc, as the share price will be adjusted accordingly on the ex-date.

That means what we own before and after the corporate exercise will be the same.

For example:

Lets say if I have 8 Inari shares, I will be entitled to 1 rights share and 1 "free" warrant.

I have to pay RM1.50 for 1 rights share.

Inari's share price closed at RM2.87 before ex-date.

My cost is: (RM2.87 x 8) + (RM1.50 x 1)

After ex-date, I will have 9 Inari shares and 1 "free" warrant.

Lets say P = adjusted Inari share price after the corporate exercise. So the warrant price should be (P - RM2.00), as its exercise price is RM2.00.

As before = after, thus (RM2.87 x 8) + (RM1.50 x 1) = (9 x P) + (P - RM2.00)

P = RM2.646

Theoretically its new warrant price should be 64.6sen.

I'm actually not too sure whether my layman style calculation is correct or not, but the outcome seems to match.

According to RHB, Inari's fully enlarged share base upon completion of rights and new warrants will be 804.5mil, which is 28% more than 629.6mil currently. 

So there will be a significant earning dilution once the new warrants which expires in 2020 are fully converted into Inari shares.

However, just look at RHB earning forecast for Inari until FY17 (Jun-17). Its net profit is expected to grow more than double in 3 years from FY14 to FY17!

       Inari's financial results forecast by RHB

With its rather aggressive expansion plan which include a new production space in Bayan Lepas which will start to contribute soon, I am confident that Inari can continue to produce better results for the next few years.

Friday, 16 January 2015

The Fall & Rise Of Hevea

Hevea was listed in main board of KLSE exactly 10 years ago on 12th Jan 2005. Its IPO price was RM2.00 with total shares of 80 million plus 40 million warrants.

On its debut day, its share price rose as high as RM2.90.

Hevea is involved in particleboard and ready-to-assemble furniture manufacturing and trading. 

Traders or investors who are in the stock market long enough (not me) might have known that Hevea faced serious problems during the global financial crisis in 2008.

Its share price has plunged to a mere RM0.06 in Mac 2009 according to the historical price chart below.

Why did it worth close to nothing at that time?

Hevea's revenue was actually in a good & steady rise since listed until year 2008!

However, its net profit went the other way as it declined every year without fail since listed.

In year 2008, it posted a small PBT loss of RM182,000. Its net assets per share still stood at RM1.56.

Why was its shares traded at less than 10 cents in early 2009?

From its FY08 (ended 31 Dec 2008) audited account:

RM mil
Long term borrowings 151.7
Short term borrowings 54.3
Cash 3.1
Bank overdraft -13.0
Net cash -9.9
Total Equity 141.1
Net D/E 1.5x
Current ratio 0.66
Quick ratio 0.26

Its gearing was very high and its liquidity was extremely low.

In year 2008, the demand and price of particleboard fell drastically while the cost went up. 

Hevea was forced to suspend the operation of its particleboard production plants.

As a result, it suffered loss and could not generate enough cash flow to pay its huge short-term debts.

       From FY2009 Annual Report

So, it is obvious that this was the reason its share price tumbled to below 10 cents.

Anyway, why did Hevea accumulated so much debt even it was just listed not long ago at that time?

Actually after just one year of listing in FY2005, its net debt/equity ratio already reached 1.0x.

At that time, Hevea was building its second particleboard plant with an eye-popping investment of RM270mil. 

Its market cap at IPO was RM2 x 80mil = RM160mil only.

The new facility started operation in the 3rd quarter of 2006. It was expected to increase its production capacity of particleboard by 4-fold from 120,000m3 to 525,000m3 per annum!

If I knew about this at that time, I would have considered to invest in Hevea seriously, but I think I would be put off by its scary debts.

The market and profit margin of particleboard at the time was bad. With the strike of global financial crisis in 2008, Hevea almost went bankrupt.

       From Annual Report FY2008

From AR FY08, it was mentioned that abnormal strengthening of USD against the currencies of some of its export countries had reduced orders received.

Anyway, except Russian currency, I don't think that is the case now.

However, it reminds us that strengthening of USD is not always good for exporters. They may have lots of debts denominated in USD, they might import raw materials in USD, and strong USD in export countries may reduce the orders temporarily.

Hevea now is totally different from the past. Its products have good demand and it has paid off its debts substantially. It is currently a healthy company which is waiting to benefit from stronger USD.

Now many investors are chasing Hevea and its share price has reached RM2.00 again.

Looking back retrospectively, I think investors should be brave enough to grab Hevea shares at below 10sen in 2009, as its NTA was at RM1.56 and we can't expect the margin and demand for particleboard to stay low forever.

Despite the debts issue and lower profits, its revenue was actually quite good throughout the years.

The lessons learned from Hevea:
  • Massive business expansion is not always good
  • High gearing is a real risk in economy downturn
  • Always keep alert on the trend of demand and cost

I find that the debts of a few companies in poultry farming industry are even worse!