Monday 11 November 2013

Huayang: Mission IsPossible?

It is without a shadow of doubt that Hua Yang is a great property developer. Nevertheless, its last two quarters' financial performance has been a bit discouraging.

For the first half of its FY2014 (FY end Mac14), Hua Yang's revenue and net profit stand at RM181.7mil and RM24.6mil respectively, which make up only 44% & 35% of FY2013's figures.

In Oct 2013 after the announcement of its FY14Q2 results, Hua Yang held an investor briefing and the management "emphasizes", "reassures" and is "confident" that its initial target for FY2014 does not change despite low 1HFY14 figures. Its FY2014 target for revenue and sales are RM500mil & RM600mil respectively.

So this means Hua Yang needs to post a revenue of at least RM318mil for the next 6 months, compared to RM182mil in the first 6 months, in order to hit the target. 

Previously the best quarterly revenue that Hua Yang has ever achieved was RM104mil. For the remaining 2 quarters this FY14, Hua Yang has to produce an average of RM160mil each quarter. Is it achievable?

      Sentrio Suites - 40 storey

Hua Yang's poorer revenue in 1HFY14 is due to timing of billings and slower than expected new project launch. In the first half of FY14, Hua Yang has launched merely RM288mil new projects with a sale of RM198mil. It has RM791mil new launch in pipeline for 2HFY14, which is quite a lot. 

If Hua Yang is able to achieve its revenue target of RM500mil for FY14, then its net profit may reach RM75mil if the PAT margin is 15%. This will be a 6.4% growth compared to RM70.5mil in FY13. At this earning level, its EPS will be 28.4sen (264 mil shares after bonus issue) and forward PE will be still a palatable 7.6x at the share price of RM2.16.

Sales in the subsequent quarters will be supported by new projects such as Sentrio Suites@Desa Pandan (GDV RM213m), Metia Residence@Shah Alam (GDV RM156m), Greenz@One South (GDV RM94mil) and other projects in Perak & Johor.

Its unbilled sales has increased from RM506mil in FY13Q3 to RM530mil (FY14Q1) and RM559mil (FY14Q2).

       Highly successful One South

It is noteworthy that since buying the 29.2acres Puchong land, Hua Yang's total borrowings have increased to RM214mil, with cash of RM13.7mil at the end of FY14Q2 (end Sep13). Its net debt/equity ratio stand at an uncomfortable 0.58.

Nevertheless, the Puchong land has an estimated GDV of RM1.5bil which can replace its nearly-completed flagship project One South. Its recent launches also receive good response where most are 100% booked. These may help to generate substantial positive cash flow to balance its balance sheet.

Anyway, its dividend payout might not be as much as previous years.

Hua Yang must be very confident to give reassurance to the public regarding its revenue target. For me it seems like a mission which is not easy to achieve, but who knows? At least all the professional analysts are very optimistic.

Hua Yang has to get the buyers to sign their sales & purchase agreement as soon as possible in order to hit its revenue target.

The credibility of Hua Yang's management will be put to test surely.

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