Hua Yang Bhd
(Feb 4, RM2.17)
Upgrade to buy from neutral with a target price of RM2.52: Hua Yang announced that it had signed a conditional sale and purchase agreement to acquire an 8.09-acre (3.27ha) land parcel in Selayang, Selangor for a total consideration of RM120 million.

This translates into a land cost of RM340.51per sq ft, which is decent given that it has an approved plot ratio of five. The management expects the land to have an estimated gross development value (GDV) of RM800 million and will consist of serviced apartments with retail lots.

The land is located along the Middle Ring Road 2 near the Selayang Wholesale Market and is situated in a relatively mature area. Similar to its other recent acquisitions in Bukit Mertajam, Penang we believe that Hua Yang will draw down some of its RM250 million sukuk facility to fund this acquisition.

We expect this acquisition to further cement Hua Yang’s position in the Klang Valley. Including this acquisition, more than 60% of its available GDV of RM3.9 billion will be contributed by its Klang Valley projects. Furthermore, given the mature area and ready access to Petaling Jaya and Kuala Lumpur via several nearby highways, we believe that there should be demand for Hua Yang’s affordable development.

We expect Hua Yang to price most of its products at below RM500,000 per unit for this development. No changes to our earnings forecasts for now as we expect earnings to come in after financial year 2017 (March).Hua Yang’s multiple acquisitions in recent weeks have strengthened its commitment to replenishing its GDV for future growth, thus we upgrade the stock to “buy” from “neutral” due to the decent upside potential going forward. — RHB Research, Feb 4

This article first appeared in The Edge Financial Daily, on February 5, 2015.