HuaYang ... Apr11

WILSON & YORK Research.

INITIATION REPORT

Hua Yang Bhd (“HYB”) has carved out a niche for itself in the value segment, providing good quality residential and commercial structures at reasonable prices. The company’s land bank is well diversified within
Malaysia, with three large projects in Klang Valley, Perak and Johor. The company was formed in 1978 and converted to a public limited company in 2001, prior to listing in 2002.


INVESTMENT RISKS
Risks to our recommendation and target price include: i) increases in the general level of interest rates, ii) possible restrictions on mortgage lending or other related disincentives to property development that are currently being seen in other countries around the region, and iii) a sharp slowdown in the general level of economic activity in Malaysia or among its major trading partners: China, Singapore, US and Japan.

RECOMMENDATION

We maintain our BUY recommendation on Hua Yang Bhd with a fair value estimate of MYR 2.08. Value investors will be attracted by the combination of solid earnings growth and profitability at earnings multiples well below the company's peers. Looking ahead, average ROE is heading to levels of 13-15%, nearly double the average seen over the period 2006- 2009, whilst P-BV remains below 0.8x.

Compared to its peers, HYB offers a higher ROE at lower multiples. See page eight of this report for more details. Though heavyweight SP Setia Bhd is not in HYB’s peer group, investors must pay quite a premium for SP Setia Bhd’s growth prospects as it currently trades on 2.9x P-BV. Hua Yang Bhd offers comparable growth rates at current year multiples less than 0.8x P-BV and 6x P-E. More importantly, the affordable housing sector that HYB is focused on is far less saturated than the high end segment that so many other listed companies are chasing.