Wednesday 5 February 2014

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?


  1. For sharing:

    Accrued billing arises due to more revenue recognised compared to progress billing to customer. Eg. project A completed v sales of RM100, but only bill to customer at RM90, hence there is accrued billing of RM10.

    You dont see in some companies probably due to different term is used - amount due to/from customer.

  2. Thanks KAI for your sharing. What's the difference between accrued billings & receivables in a property dev company?

  3. Gearing ratio and operation cash flow also not that good :(

  4. Accrued billing and receivable are quite similar. Difference is that receivable is money owed by buyer, which means company has billed customer.

    Eg. House sales price rm100, require downpayment 5%, balance 95% be paid upon completed, so buyer will be billed RM5 and it would sit in receivable first if the buyer hasnt paid. Let say the house is 30% completed at yr end, the company will recognise revenue RM30 (percentage of completion), but because of agreement above company can't bill buyer yet, RM25 will be in accrued billing. Ultimately, accrued billing will be reclassed to receivable once billed.

    Hope it explains :)

  5. Thanks KAI for your explanation :)

    CT, yes, current gearing is "non Huayang like".

  6. Hi KAI and Bursa D, thanks for your explanations on accrued billing.

    When the progress of work has achieved 30%, and given the agreement that the rest 95% is only billed upon completion, then is the 30% recognized in the group's revenue? or only 5%/ 10% down payment/ SPA is recognized in the revenue?

    Last but not least, what's the difference between accrued billing and unbilled sales?

    Again, thanks for your kind sharing.

    1. Hi Rroy, I doubt whether KAI can see your comment here...

      From explanation by KAI above, the 30% will be recognized as revenue, but no cash received.

      Base on above example by KAI, house sales price RM100 & 95% billed only upon completion. At 30% progress (after 5% downpayment), RM25 will be in accrued billing, while unbilled sales should be RM70 I guess, as RM30 has been recognized as revenue at 30%, even though 95% will only "billed" upon completion.

      I need KAI to verify, as I'm also blur blur after your questions.

    2. Hello,

      Different between progress billing and accrue billing,

      Regarding the revenue recognition of property development, pls see below. It will take some times to understand.

      Hope it helps, I assume you all able to read mandarin :)

    3. CT Yap, you got notified about blog comments here?
      Thanks for the link, really need the to digest.

    4. Ya, so that I will be notified on the following comments :)

    5. I'm not aware that there is such notification function... how to do it?

      As for the links above, I find that revenue calculation is different between the two. The English version uses cost-to-date to derive the revenue, but Chinese version uses progress-to-date...

  7. Everytime I left comment, there is a button "Notify me" to click to get the notification.

    English version explain what is the difference between progress billing and accrue billing. It's similar to what Kai said above.

    Revenue recognition for Malaysia's property development use Percentage of Completion (POC) method. You can read the Notes in the AR. And POC is based on the total cost incurred for the project up to reporting date. So, as far as I understand is they use cost-to-date to determine the progress-to-date. Then, from progress-to-date, it will help to determine how much revenue to be recognized. (Progress percentage x Sales x Take up unit).

    After that can determine the property development cost and unbilled sales.

    It's quite complicated for those from non-accountant background (me). I also half half only :)

    1. Thanks. Anyway I think I still can't understand it thoroughly :)