TA Securities Research has downgraded property developer Hua Yang Bhd to hold (from buy) with a target price (TP) of 28 sen following the recent rapid appreciation in its share price of around 25% in three weeks.
“Our TP of 28 sen is pegged to 0.17x FY21 basis points (bps) (1.5 standard deviations below its long term mean of 0.57x). Upcoming 4QFY20 results (ended March 20) are expected to be supported by the timely completion of Meritus Residensi in Penang – before the implementation of Movement Control Order (MCO),” said the research house in a note on April 22.
However, the research house said the 42-day MCO is expected to hit Hua Yang’s performance to a larger extent in 1QFY21 (April to June quarter) than FY20.
“That said, we expect the upcoming 4QFY20 results to be largely supported by the completion of Meritus Residensi, which accounts for about 29% of the group’s total unbilled sales.
“We understand that Meritus Residensi was completed four months ahead of schedule and handed over to purchasers before the MCO started. Looking ahead, management acknowledges the need for expedite new launches and construction progress post-MCO,” it said.
In the meantime, business continuity plans have been activated, which include shifting day-to-day operations and marketing focus online. In fact, the group had embarked on an office automation system since a year ago to improve productivity and efficiency. The Covid-19 outbreak has pushed forward and sped up the timeline for implementation.
Nonetheless, TA Securities said the near term earnings outlook would be impacted by a slower pickup in consumer sentiment and business activities post-MCO, prompting it to lower its FY20/21/22 earnings by 5%/43%/14% respectively.
Hua Yang’s share price opened 3.92% lower at 24 sen before the midday break, giving it a market capitalisation of RM86.24 mil. – April 22, 2020
