Hua Yang: Manageable land cost, healthy gross margin.

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If a developer tells you that any land purchase it made will be below 20% of the total gross development value (GDV) and that its gross margin is over 30%, would you buy its shares? I did not but many did. Perhaps I should just buy one thousand unit and keep as ‘fixed deposit.’ Hua Yang’s chief executive officer Ho Wen Yan said that even though there were some concerns about its purchase of a piece of Bukit Mertajam land, the purchase remains within their expectations of a lower than 20% versus GDV and gross margin remain above 30%. Hua Yang has 11 ongoing projects in Klang Valley, Johor, Perak and Negeri Sembilan. It’s project in Perak is in Iskandar and if one is looking at rental to students, it is worth a second look. I do not personally own a unit currently. The GDV for it’s Penang foray is RM313.5 million. It consists of serviced apartments, commercial shoplots as well as a condominium block.

It had recently bought a piece of land in Selayang too, another area which I think will continue to grow as it is definitely not considered a premium hotspot yet. Read here: The location less loved by many, perhaps. Note, when an area is not yet considered a hotspot, the best action would always be to buy for own stay. If you intend to buy for investment, there are many other choices too, not just these cheaper areas. Oh yeah, since it is Selayang, the prices should be within the affordable category. I term affordable as anything below RM500,000, irregardless of size. Digress a little. If you stay there and your wife is pregnant, you can also go to Selayang hospital’s Full Paying Patient wing. For half or less than half of the usual delivery cost, you get the usual personalised doctor just like the usual private hospitals too. Yes, you can choose the doctor too. I stay a little too far for this. Read here if you really do have a pregnant wife and wants to consider:  FPP Scheme, personal experience. 

Oh yeah, last but not least, before you buy their stocks do note that their net gearing is considered on the high side. According to Kenanga Research, it will reach up to 0.84 times and will still be at 0.7 times by end 2016. Gearing meant the level of debts for the company versus it’s equity capital. Very briefly, the higher, the worse because it meant the level of debt is very high. Note though that if you are buying property developer’s stocks, you also do not want the gearing too be very low because it may also meant that the developer is just not having enough projects or not aggressive enough. For any development to happen, land acquisition has to be done well in advance. Thus, the gearing would normally go up. The sales numbers are also not yet profits until the very end because they have to continue paying for the construction stage till completion.

So, what’s the decision? Buy their project or buy their shares instead? I think buying 1,000 unit seem like an easier option for me. Perhaps have to hold for some time under current market condition. Happy deciding.

written on 25 Feb 2015

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