Huayang: No More A Darling?

Despite the poor 1H FY14 sales and profit, Hua Yang's management is still confident to achieve revenue and sales target of RM500mil & RM600mil respectively for its FY14 which ends in Mac14.

Now its FY14Q3 results has already been released 2 weeks ago. It registers an all-time high quarterly revenue at RM129.9mil & near all-time high quarterly net profit of RM19.7mil.

This pushes its total 9M14 revenue to RM311.6mil but 9M14 net profit is just RM44.4mil , which is only 63% of FY13 full year net profit.

Nevertheless, Hua Yang's sales jumps from RM197.7mil in 1H14 to RM580.1mil in 9M14, which means it bags RM382.4mil sales during the 3 months period.

As a result, unbilled sales surge 50% to RM838mil from RM559mil just 3 months ago.

There will be no problem for Hua Yang to hit its FY2014 sales target of RM600mil. To hit its revenue target of RM500mil, it is still RM188.4mil short, which I think is hard to achieve.

However, surely it will surpass FY2013 revenue of RM408.7mil.

I expect Hua Yang to post a higher revenue for the last quarter of FY2014, but its net margin might be lower due to higher cost. Thus, it is unlikely to better FY2013's net profit of RM70.5mil.

       Greenz @ One South

Though its continuous annual profit growth is set to be interrupted, Hua Yang's future still looks good.

Last year it has replenished its landbanks at strategic areas such as Puchong (29.2acres) and Seri Kembangan (3.73acres).

The management will try to duplicate the success of One South in the Puchong land, with an estimated GDV of RM1.5bil. 

Overall, Hua Yang has a future GDV of RM3bil.

       One South

Hua Yang's share price has dropped about 25% since its bonus issue ex-ed in Oct 2013. While the poorer than expected revenue & profit is certainly one of the reason, its increasing gearing ratio is another concern.

As at 31 Dec 2013, Hua Yang's total debt amounts to RM267mil, and cash & bank balances are at RM16.5mil. Deducting the bank overdraft of RM8.6mil, its free cash is only at RM7.9mil.

Thus, its net gearing ratio is at an uncomfortable 0.7x. This is even higher than Tropicana's latest figure at 0.68x.

However, there is an item "other current assets" worth RM150.6mil in the balance sheet. It mainly consists of accrued billings in respect of property development cost. 

I'm not sure what does this exactly mean but it seems like some property developers have this in their accounts and some don't. 

I think that this item is very close to cash and that's why Hua Yang plans to give higher dividend payout for current FY according to the management's guidance. 

       Huayang: RM1.76 @ 5 Feb 14

Today Hua Yang's share price closes at RM1.76. I'm very tempted to grab its shares after watching it for so long, especially with such a high sales generated in FY14Q3. However, its high gearing & overall poor property sector sentiment make it less attractive.

I think Hua Yang still can make at least RM60mil profit for FY14, giving it an EPS of 22.7sen. At RM1.76, PE is just 7.7x. In other words, target price should be RM2.27 if fair PE is 10x.

If the dividend payout ratio is 30% for FY14, then DPS will be 6.8sen and DY 3.9%.

Hua Yang has given bonus issues for every single year since year 2010. Will it continue this trend in CY2014? Perhaps it is rights issue next.

Overall, Hua Yang has got proven track records in property development and maximizing shareholders' value over the years. Is it an opportunity not to be missed now?