Hua Yang (UnInspiring 1H14, Better Sales In 2H214)

Its sales for the third quarter ended Dec 31 of financial year 2014 (3QFY2014) hit a record level of rm382.4 million propelled by resilient demand for affordable homes. The strong 3Q sales brought Hua Yang’s nine-month (9M) new sales to rm580 million surpassing FY2013’s new sales and also the previous high in FY2012.

The significant jump in new sales was attributed to new projects in this quarter – Sentrio Suites, Media Residences and Greenz which collectively contributed about 50% of total year to date sales.

Its three projects launched in Nov 2013 received encouraging responses. Specially the affordable serviced apartments with average selling prices per unit of between rm380000 and rm60000 were fully booked within a month.

Notwithstanding the new cooling new measures, the healthy sales numbers were a clear sign that the demand for affordable homes in urban areas was still strong.

In view of the strong 9MFY2014 new sales, the group is tracking ahead of its internal sales target of rm600 million for FY2014.

Expect both the existing and new projects to contribute to 4Q new sales.

Nevertheless, its profit growth is likely to be flattish at best as the broader construction sector is now experiencing a labor shortage. As such, the group may face challenge of speeding up the pace of construction significantly.

Expect its net profit for 4QFy2014 to be driven by maiden contribution from three new projects – Greenz, Media Residences and Sentrio Suites and increasing billings from Parc and Gardenz.

Over the next six months from Feb 2014, it will be focusing on project execution and handling over of completed PARC & Gardenz@One South units to buyers. The group next flagship project at Puchong (GDV of rm1.5 billion) will likely be marketed in 4QCY2014. Hence FY2015’s sales trend could be a replica of FY2014’s, implying an uninspiring sales performance in 1H and better sales prospects in 2H.

As far as the implementation of the GST in 2015 is concerned, management intends to tender out its FY2015 and FY2016 construction orders on net basis, which means Hua Yang will lock in the contract amount up front , with future cost escalation borne by the contractor.