Hua Yang Bhd
(Jan 27, RM2.19)
Maintain neutral with a target price (TP) of RM2.37: Hua Yang announced the acquisition of two land parcels in Bukit Mertajam, Penang measuring a total area of about eight acres (3.24ha) [4.9 acres + 3.1 acres] for a total consideration of RM31 million. 

This translates into land costs of RM66 per sq ft (psf) and RM103 psf for the two land parcels respectively. The land parcels are located approximately 0.5km away from the Bukit Mertajam town centre. They have been earmarked for the development of serviced apartments, commercial shoplots as well as a condominium block. Total estimated gross development value (GDV) for the development is about RM313.5 million. 

Based on our channel checks, we note that land transactions in Bukit Mertajam are typically below RM100 psf, but Hua Yang’s land could possibly have a different fronting, and hence the higher acquisition price. We believe Hua Yang will draw down some of its RM250 million sukuk facility to fund this acquisition.

The acquisition of these land parcels is in line with Hua Yang’s target to break into new markets.

Furthermore, given that the area is already relatively matured, we believe that there should be demand for Hua Yang’s affordable development. We expect Hua Yang to price its products at below RM500,000 a unit for this development.

We make no changes to our forecasts for now as we expect earnings to come in after financial year 2017. Our TP is now revised higher to RM2.37 (from RM2.28) after factoring in the GDV contribution from the acquisitions. As we believe Hua Yang is fairly valued at current prices, we maintain our “neutral” call on the stock. — RHB Research, Jan 27

This article first appeared in The Edge Financial Daily, on January 28, 2015.