Huayang: Poor Sales A Concern

Huayang FY16Q1 Financial Result

Huayang	FY16Q1	FY15Q4	FY15Q3	FY15Q2	FY15Q1
Revenue	142.6	152.1	155.5	139.5	136.5
Gross Profit	51.5	53.2	59.3	45.2	43.2
Gross%	36.1	35.0	38.1	32.4	31.6
PBT	40.2	42.5	43.2	35.2	32.6
PBT%	28.2	27.9	27.8	25.2	23.9
PAT	29.9	29.7	30.9	26.0	23.9
Total Equity	495.8	465.9	449.4	436.9	410.9
Total Assets	944.2	923.2	877.3	828.0	811.0
Trade Receivables	72.9	88.9	73.3	68.1	62.6
Prop dev cost	161.5	167.7	175.5	159.5	145.1
Inventories	10.5	9.9	9.8	9.8	10.0
Other Current Assets	200.7	189.6	180.3	157.0	165.6
Cash	62.6	40.9	44.1	43.9	27.0
Bank Overdraft	4.6	7.4	14.4	10.9	15.0
Total Liabilities	448.5	457.4	427.9	391.1	400.0
Trade Payables	135.1	141.5	118.2	120.4	134.5
ST Borrowings	78.1	78.6	82.2	75.9	74.2
LT Borrowings	195.4	192.1	187.4	161.0	165.2
Net Cash Flow	24.4	3.4	-0.5	2.7	-18.2
Operation	25.6	115.9	71.1	58.1	26.1
Investment	-6.7	-86.6	-50.7	-23.9	-11.2
Financing	5.6	-26.0	-20.8	-31.5	-33.2
Dividend paid	0	44.9	31.7	13.2	13.2
EPS	11.32	11.25	11.72	9.84	9.07
NAS	1.88	1.76	1.70	1.65	1.56
D/E Ratio	0.43	0.51	0.53	0.47	0.55
Unbilled sales	660.8	701.9	733.3	717.9	756.4

I expect Huayang to post average quarterly net profit of RM25-30mil in its FY16, so its FY16Q1 net profit of RM29.9mil is not a surprise.

The main concern is the fact that Huayang just achieved RM81.7mil new sales in its FY16Q1 (Apr-Jun15), which is only 16% of its target annual sales of RM500mil, or 18% of FY15 overall sales of RM460mil.

As a result, unbilled sales drop to RM661mil from RM702mil a quarter ago.

Nevertheless, latest sales were achieved without any launch of new project in the last 2 consecutive quarters. So the RM81.7mil figure are not too bad I think.

Huayang is unlikely to launch new project in current quarter of FY16Q2 (Jul-Sep15). Upcoming project Mines South will probably be launched in the end of CY15.

Targeted new launch for FY16 remains at RM633mil. Huayang still keeps its FY16 sales target intact at RM500mil, with RM426mil of already-launched projects available for sale.

Take-up rate of its final phases at One South has been poor so far. Sales of Cube and Zeta Residence improve slightly to 36-39% from 20-29% in previous quarter.

Citywoods's take up rate is even worse at 31% so far, up from 25% a quarter ago despite attractive selling price at RM500-600 psf compared to other high-rise projects at RM700-1000 psf in Johor Bahru, according to TA Securities.

While Huayang's financial results in FY16 should remain good, it certainly needs to improve its sales to at least RM500mil a year to sustain this performance.

In near term, its Klang Valley projects such as Mine South and Puchong West will be key.

The remaining unsold units at One South should get a boost from the proposed MRT2 route which has a station right opposite One South across the KL-Seremban Highway. A dedicated link bridge between the MRT station and One South has been proposed.

Meanwhile, the management will continue to acquire strategic land to expand its GDV.

Huayang's TTM EPS stands at 44.1sen. At share price of RM1.90, it is currently trading at PE ratio of merely 4.3x.

Huayang paid 12sen dividend for its FY14, which means a 38% payout ratio. If it decide to pay 35% in FY15, then it will be total 14.5sen. 

It has given 5sen for FY15, and final dividend should be declared  at the end of this month.

I think it is more likely to pay out 30% which means 12.5sen in FY15. If this is the case, dividend yield will still be an attractive 6.6% at current share price.