Huayang- profit margin slid further

Results Update

For QE30/9/2013, Huayang's net profit remained unchanged at RM16.7 million when compared to the immediate preceding quarter (QE30/6/2013) but declined by 28% y-o-y from RM17.1 million. Revenue also declined by 2% y-o-y but rose 26% q-o-q to RM101 million. The decline in bottom-line y-o-y was due to slower construction progress.


Table: Huayang's last 8 quarterly results


Huaynag's bottom-line continued to slide as did its profit margin. If profitability for a developer that builds for the mass market is heading south, it is a sign that all is not well with the property sector. The competition is getting very stiff in the race to the bottom of the market (or more appropriately, the lower-to-medium-end of the market which Huayang is positioned) .



Chart 1: Huayang's last 21 quarterly results

Valuation

Huayang (at RM2.27 yesterday) is trading at a PE of 9.7 times (based on last 4 quarters' EPS of 23.3 sen). At this PE, Huayang is still deemed fairly valued, with limited upside.

Proposed Bonus Issue

Huayang has just proposed a 1-for-3 bonus issue on October 10. In the past 4 years, Huayang had carried 4 bonus issue. The past 3 bonus issues are 1-for-4 on Oct 11, 2012: 1-for-3 on Oct 25, 2011; and, 1-for-5 on Sep 24, 2010. There is a saying that too much of a good thing may not be good for you.

Technical Outlook

Huayang's uptrend seems to have hit the wall. Its immediate resistance is at the horizontal line at RM2.40 while its immediate support is at RM1.95-2.00.


Chart 2: Huayang's weekly chart as at Oct 23, 2013(Source: quickcharts)
 
Conclusion

Based on decline in financial performance, a less-than-cheap valuation and neutral-to-cautious technical outlook, I would rate the stock as a SELL INTO STRENGTH.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Huayang.