Head-To-Head: OSKProp vs Huayang

In contrary to some analysts who do not expect a good year for property sector this year, property sector actually does quite well in term of sales and stock price performance.

Since the beginning of this year I have removed those property stocks from my watchlist. Now I know that it is a mistake. The consolation is, property stocks still take up quite a big percentage in my portfolio.

One of the stock I missed dearly is Huayang. 

I think not many investors will deny that Huayang is a great stock to own for long term. I am "craving" for it for quite some time but I don't know why I didn't buy it. 

Perhaps when the stock price keeps on breaking new high, it kind of stops you from buying.

I was very tempted to buy its shares when it dropped to below RM2 early this year. However at that time, I think I have to be disciplined enough not to add more property stocks. Furthermore, its high gearing also further strengthen my decision not to buy.

Now I can only regret my stupid decision.

At the same time, OSKProp started to catch my attention after it released its full FY2013 result. Nevertheless, I'm not sure why I did not have any urge to study it further, perhaps because it is also a property stock.

Now OSKProp has already released its financial result for the first half of 2014, and it is just too hard to ignore it.

Both Huayang and OSKProp are small-mid size property developers that are growing at the moment. This can be seen from their latest financial results.

As OSKProp financial year ends on 31 Dec and Huayang on 31 Mac, for easier comparison I will consider Huayang's FY14 to be 2013 and similarly for earlier financial years.

Throughout the last 5 years, in general both Huayang & OSKProp achieve consistent growth in revenue and PATAMI.

However, Huayang's revenue and PATAMI are higher compared to OSKProp, especially its PATAMI.

The PBT margin of both companies are almost similar. So the relatively lower PATAMI for OSKProp might be due to more profit to minority interest (Sutera Damansara is 51% owned), while all recent Huayang's projects are 100%-owned.

Because of bonus issues in 3 consecutive years in 2011, 2012 & 2013, Huayang's EPS is declining slightly for the last 2 years despite increasing PATAMI. Meanwhile OSKProp's EPS is in a steady climb.

How about the future earnings of both companies? We can look into their recent sales figures as this will give some earning visibility for the near future.

OSKProp locked in more new sales compared to Huayang every year for the past 3 years. So, unbilled sales of OSKProp are higher as well.

In the last 3 years combined, OSKProp has generated total new sales of RM2.03bil compared to Huayang's RM1.65bil.

This means that OSKProp's revenue for year 2014 & 2015 will probably overtake Huayang. I predict that OSKProp's PATAMI may also surpass Huayang in 2014. These can be seen from the latest financial results by both companies.

Nonetheless, Huayang can still prevent this with more aggressive new launches in the second half of 2014.

For ROE, Huayang is excellent at above 20% mark, most probably in 2014 as well. However, do expect OSKProp to break above 20% in 2014.

High gearing is Huayang's main "problem" at the moment, due to aggressive landbanking activity since year 2011, especially the purchase of Puchong's land that cost RM158mil.

OSKProp looks like it can become a net cash company if it does not buy land this year.

Table below shows recent land acquisition of OSKProp & Huayang (might not be accurate)

Date	Location	Size (acres)	Cost (RM mil)	Project
OSKProp
Sep 2011	Cyberjaya	16	86.5	Pangaea
Feb 2012	Shah Alam	13.73	45.4	Gravitas
Sep 2012	Bandar Sri Damansara	1.06	12	Opus
May 2013	Shah Alam	2.91	15.2	Emira
Huayang
May 2011	Kuala Lumpur	1.55	32	Sentrio Suites
Jun 2011	Shah Alam	3.73	13	Metia Residence
Aug 2011	Johor Bahru	2.1	10.7	Citywoods
Apr 2012	Hulu Kinta	21	15.2
Oct 2012	Puchong	29.2	158
Jun 2013	Seri Kembangan	3.73	56.9
Aug 2014	Hulu Kinta	7.2	25.1

For the past 3 years, Huayang spends almost 2 times more than OSKProp for land acquisition. OSKProp needs more cash to construct its Atria shopping mall I guess.

In term of dividend, generally Huayang pays more dividend per share due to its superior earning.

However, OSKProp also pays good dividend historically if we look at its dividend payout ratio from net profit. Both OSKProp and Huayang are quite even in dividend payout for the past 3 years at around 40%.

At current share price, Huayang has a decent dividend yield of 5.0% (RM2.42), while OSKProp's dividend yield is at 3.1% (RM2.78).

       Metia Residence (Huayang)

As mentioned earlier, base on last 3 years' sales figures, OSKProp might overtake Huayang in term of revenue and profit. However, this will also depend on their respective sales this year and in the future.

Who has a brighter future?

As Huayang has acquired more new lands, it is not a surprise that it plans to launch lots of projects (up to RM1.09bil) for its FY15 which ends in Mac 2015. So far this year it still hasn't officially launch any projects.

The table below shows recent and future new projects launch of OSKProp & Huayang. (might not be accurate)

Year	OSKP		Huayang
	Project	GDV	Project	GDV
2011	Mirage By The Lake	466	Parc (OneSouth)	154
	Mirage Residence	175	Gardenz (OneSouth)	160
	Atria SOFO	200
2012	Vale (Sutera)		Flexis (OneSouth)	183
	Paragon (Pangaea)		Pulai Hijauan
	Solstice (Pangaea)	340
2013	Eclipse (Pangaea)	398	Greenz (OneSouth)	194
	Almira28 (Sutera)		Metia Residence	156
	Vale II (Sutera)		Sentrio Suites	213
2014	Roseville (BPJ)
	Gravitas	150
TBA	Emira	250	Citywoods	248
	Opus	75	The Gardens	64
	Kepler (Pangaea)	338	Cube (OneSouth)	185
			New phase P/Hijauan	127
			First phase Puchong	300
			Ridgewood	90
			Greenview Residence	12

TBA = To Be Annouced
BPJ = Bandar Puteri Jaya

It is clear that Huayang depends a lot on its successful One South project in Seri Kembangan, while the near future earning of OSKProp will be hugely supported by its high-GDV Pangaea in Cyberjaya. Both projects will probably enter their last phase this year.

After this, Huayang has Puchong West (GDV RM1.35bil) as One South's successor. However, it seems like OSKProp doesn't have a successor yet for its Pangaea.

       Pangaea (OSKP)

OSKProp has small pieces of prime land in Bandar Sri Damansara (Opus) & Shah Alam (Emira), while Huayang matches it with land at Seri Kembangan (Mines South) & Johor Bahru (Citywoods).

Both companies have huge township development. OSKProp has Bandar Puteri Jaya in Sg Petani, with remaining landbank at approximately 1,200 acres. Huayang has ongoing township at Bandar University Seri Iskandar in Perak (about 400 acres remaining) and Taman Pulai Hijauan in Johor (about 92 acres remaining).

Coincidentally, both companies also have lands in Seremban, where OSKProp has 15 acres while Huayang has 35 acres, both freehold.

Besides, Huayang has an ongoing commercial project Senawang Link in Seremban which has 20 acres remaining, as well as more small land parcels in Ipoh for both commercial & residential development. (from latest annual report).

       Cube @ One South (Huayang)

Nevertheless, OSKProp recently sold 108 acres of land in its BPJ for RM56mil to PR1MA, and will be given the responsibility to construct 1,395 units affordable houses on it.

Protasco gets similar project worth RM88.1mil earlier this year to construct 1,144 units of PR1MA houses. So I think OSKProp's PR1MA project might worth about RM110mil.

OSKProp expects its Atria Mall (470,000 NLA) at Damansara Jaya to be ready by the end of this year. So it should contribute as a recurring rental income to OSKProp from year 2015, which can more or less "protect" the company from property market slowdown.

Furthermore, OSKProp plans to build the largest shopping mall in Sg Petani in its BPJ which might mean more recurring income in the future.

Belleview Group (not listed) also said that it will build the largest shopping mall in Sg Petani. Who will be larger then?

       Atria SOFO & Shopping Complex (OSKP)

Meanwhile for Huayang, its landbanking activity might be limited due to high gearing, even though it has recently taken up a RM250mil Sukuk program. It has to pray that its property projects sell well to generate enough cash to pay the debts.

Anyway, Huayang does not seem to stop here as the management eyes further land acquisition in mainland Penang and Kota Kinabalu.

Development lands are crucial to a property company so I think Huayang's move is good for its shareholders. 

       Sentrio Suites (Huayang)

Both companies seem to be undervalued at the moment base on fair PE ratio of 10x.

	OSKProp	Huayang
Current Share Price (RM)	2.78	2.42
Projected PATAMI (mil)	100	100
Projected EPS (sen)	41	38
Actual PE	12.2	7.8
Projected PE	6.8	6.4
Diluted Projected PE	9.6	6.4

OSKProp's current actual PE (base on latest full FY result) may be higher but it will drop for sure if its 1HFY14 PATAMI is to be annualized. 

The projected PE is base on projected PATAMI of RM100mil for both companies in their next full FY (similar with Tambun!). 

At the moment OSKProp and Huayang have paid-up shares of 244mil & 264mil units respectively. OSKProp has 105mil outstanding warrants expires in Aug/2017. 

       Mirage By The Lake (OSKP)

In term of management team, Huayang has a good one for sure, who has grown the company tremendously besides giving good dividends and bonus issues without diluting shareholder's shares value.

As for OSKProp, I'm not too sure but it can't be too bad as it has successfully raised the company's earning and value to a higher level.

Anyway there is a possibility that OSKProp might be injected into OSK Holdings by its major shareholders. I think this might be a double-edge sword to OSKProp's minor shareholders. If OSKProp is valued cheaply, then it's not good.

In May 2011, OSKProp was attempted to be taken over by major shareholder Ong Leong Huat at 87sen per share. Its share price was traded around 75sen at that time and surged to 79.5sen a day before the announcement.

OSKProp's FY2010's EPS stood at 6.3sen, so 87sen offer price represented a PE ratio of 13.8x. However, its net asset per share at that time was RM1.74. 

As a result, the takeover offer didn't go through.

In 2013, Ong also attempted to take over both OSK & OSKVI with offer price significantly lower than their net asset per share. So both have failed as well.

OSKProp's latest net asset per share stands at RM1.87, which is below its share price of RM2.78 at the moment. However, it still has Atria mall & is yet to revalue its land. What should be OSKProp's fair price? 

Anyway, OSKProp might not be injected into OSK in the first place.

Is it still safe to invest in property sector now? If it is, OSKProp & Huayang, which one is more attractive? Why not both?