PETALING JAYA: Hua Yang Bhd
is expected to face a challenging operating environment ahead on the back of rising building material costs, supply chain disruptions and higher financing expenses from overnight policy rate hikes.
TA Research noted that the property developer’s revenue of RM49mil and net profit of RM600,000 in the first half of financial year 2023 (1H23) were below expectations. The figures accounted for 41% and 11% of its full-year forecasts respectively.
“The variance was mainly due to lower-than-expected progress billings and higher-than-expected effective tax rates,” said the research house in a report yesterday.
While Hua Yang’s 1H23 revenue was a 0.5% decline year-on-year (y-o-y), its net profit reflected a recovery in earnings from a net loss of RM4.6mil in the corresponding period last year.
“This was due to the group’s discontinuation of recognition of the share of Magna Prima Bhd (MPB)’s performance. MPB has been reclassified from an associate to a simple investment since the fourth quarter of financial year 2022 (4QFY22),” said TA Securities.
On a quarterly basis, revenue went up by 9% to RM25.5mil in 2Q23 from RM23.4mil in 1Q23, spurred on by an uptake in building activity, while it was lower income tax expenses that drove a 53% surge in the group’s net profit for 2Q23.
Meanwhile, Hua Yang’s recent property launches; Aston Acacia phase two and Puchong Horizon, had elevated the group’s property sales.
“Underpinned by the official launch of Aston Acacia phase two, Hua Yang’s new property sales for 2Q23 jumped 190% y-o-y and 81% quarter-on-quarter to RM64.9mil,” said TA Securities.
The group’s property sales went up by 47% y-o-y to RM100.8mil in 1H23. This accounted for 67% of both Hua Yang’s sales target and the research house’s sales assumptions of RM150mil.
As such, the group’s unbilled sales rose to RM217mil in 2Q23, from RM169mil in the last quarter.
“The timely launch of Puchong Horizon with a gross development value of RM2bil is crucial to drive future earnings growth. Nonetheless, the official launch of Puchong Horizon has been delayed multiple times since FY20 due to a lacklustre reception,” said the research house.
TA Research said while it expects the group’s property sales to increase by 51% y-o-y to RM200mil in FY23, it considers its forecast to be unattractive. During the industry’s upcycle fromFY12 to FY15, Hua Yang posted sales ranging from RM400mil to RM700mil.
“We revised our FY23, FY24, and FY25 property sales assumptions to RM200mil, RM220mil and RM225mil respectively from RM150mil, RM230mil, and RM240mil respectively. We also adjusted our progress billings and effective tax rates assumptions to reflect the latest quarterly results. Correspondingly, our FY23, FY24, and FY25 earnings were lowered by 54%, 10% and 5%, respectively,” said TA Research.
Moreover, Hua Yang is also holding a rights offering exercise with an issue price of 18 sen a share to raise RM15.8mil. This is based on an entitlement basis of one rights share for every four existing shares held.
Free detachable warrants also come with the rights issue, with an exercise price of 30 sen a piece.
“The bulk of the proceeds will be allocated for general working capital needs and repayment of borrowings. The exercise is expected to be completed by the end of October 2022,” said TA Research.
It maintained a “sell” call for Hua Yang with a target price of 16 sen. Citing a lack of investors’ interest and the reallocation of internal resources, the it announced that it would cease coverage on Hua Yang.
