HuaYang ... High Gearing A Concern !!!

It had snapped up several parcels of land totaling rm151 million, has dismissed concerns its gearing is high amidst the gloomy property market outlook.

 

It had in Jan 2015 announced the acquisition of two parcels in Bukit Mertajam, Penang for rm31 million, It had reportedly its maiden venture into the Penang mainland property market.

It had also entered into a conditional agreement with Nation Holdings Sdn Bhd to acquire 3.24ha of leasehold land in Selayang for rm120 million. It is said to be setting its sight on Sabah.

Its enthusiasm for expansion is concerned by many due to its high gearing of about 0.5 times. The company’s total debt to equity ratio of 64% against LBS Bina’s 40%, Hunza Properties Bhd’s 43% and SelDredging’s 79%.

Huayang believes sales from its project launches will fuel profit growth and improve operational cashflow. This will pare down borrowings in the medium term.

The acquisition increases its gross development value only marginally. This may allay market’s concerns in the short term but the apprehension remains whether affordable housing developers can continue to acquire new land parcels.

It is a developer primarily focusing on affordable housing.

With the prices of construction work and materials locked in by Huayang and unit pricing not expected to increase given the company is a developer of affordable housing, profit margin is expected to be maintained. As prices are locked, its primarily focuses on improving sales of its various projects.

Its stock price downside is buffered by high dividend yield. However when its gearing is high, the management might forgo high payout.

If the property sector weathers the ongoing period of tight lending standards now (March 205), Huayang may emerge as one of the favourite picks for property sector.