Performance Review Management Discussion and Analysis Report

" Despite the prolonged industry downcycle, Hua Yang remains committed to delivering a unique brand of quality mid-market homes in key strategic urban hotspots across Malaysia. ”

Ho Wen Yan Chief Executive Officer

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Dear Valued Shareholders, Group Revenue & Operating Profit Performance Hua Yang Berhad (“Hua Yang”) achieved a commendable operating performance for the financial year ended 31 March 2020 (“FY2020”). During the year, the property sector remained subdued due to conservative lending policies and issues with slower income growth and affordability. As a result of the above factors, inventories in primary and secondary markets continued to remain high.

In addition, the last quarter of FY2020 brought about the unprecedented negative impacts of the novel coronavirus disease (“COVID-19”). The disease spread rapidly around the world, prompting the World Health Organisation to declare COVID-19 a pandemic. Malaysia responded to this by closing our borders and implementing the Movement Control Order (“MCO”) on 18 March 2020, a lockdown aimed at preventing the spread of COVID-19. Such restrictions had a significant impact on the property sector and the economy as the demand and supply of good and services were severely affected.

Against this backdrop, Hua Yang focused on clearing completed inventories and aggressively marketed on-going projects whilst improving cash flow and paring down long-term debt obligations. New launches were strategically undertaken at a more measured pace, taking into account projected market demand and project cash flow requirements. This approach has paid off as inventory levels are at a manageable level and long-term debt has been reduced significantly.

Financial Performance Success in our marketing efforts to dispose of available units in our completed properties has yielded positive results, as can In FY2020, the Group’s total revenue increased marginally to RM279.6 million from RM272.5 million recorded in the previous be seen in the following chart. However, total inventory increased during the fourth quarter of FY2020 due to the completion financial year (“FY2019”) while gross profit remained largely unchanged at RM73.4 million. Revenue was supported by steady of retail shops at Taman Pulai Hijauan, ELEMENCE @ Taman Denai Alam Phase 1 and MERITUS RESIDENSI, Phase 1, adding a construction progress of on-going projects and sale of completed properties. Key projects that contributed to FY2020 revenue total of 65 units comprising of high rise, landed residentials and retail shop lots. include ASTETICA RESIDENCES in and MERITUS RESIDENSI in Mainland Penang. Contributions from these key projects accounted for approximately 67% of total group revenue. Within the key regions, Penang accounted for 38% of group revenue, whilst Johor and Valley contributed 21% and 29% respectively. FY2020 Inventories in Completed Properties

FY2020 Revenue Contribution by Region

In FY2020, Hua Yang completed and handed over a total of 606 units of properties with a total Gross Development Value (“GDV”) of RM275.9 million. This includes Taman Pulai Hijauan, ELEMENCE @ Taman Denai Alam Phase 1 and MERITUS RESIDENSI, Phase 1.

FY2020 Completed Projects Despite the commendable performance in revenue and gross profit, Hua Yang reported a loss before tax (“LBT”) of RM64.3 million and a loss after tax of RM73.2 million in FY2020. The significant decline in earnings was due to an impairment loss of RM74.7 million on its investment in associate, Magna Prima Berhad (“MPB”).

The impairment loss was due to a change in the method used to estimate the fair value of MPB from a net asset value to the quoted price of MPB published in the Main Market of Bursa Malaysia Securities Berhad. The change in the fair value estimate was deemed necessary and prudent taking into the account the appointment of Receiver and Manager over the properties and assets of MPB’s subsidiary, Magna Ecocity Sdn. Bhd.

Excluding this provision of impairment loss and the share of loss at the associate level, Hua Yang’s adjusted operating profit would have risen 14% to RM35.2 million, whilst adjusted profit before tax would have improved significantly to RM20.6 million in FY2020. This demonstrates Hua Yang’s improving business fundamentals and underlying strength in its development activities as core operating profit sustained a steady growth trend on a yearly basis despite the increasingly difficult market environment.

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Total assets as at end FY2020 amounted to RM1,069.3 million, compared to RM1,196.1 million as at end FY2019. Land held for property development stood at RM448.2 million, decreasing marginally from RM478.6 million last year. Inventories of Historical Trend in New Launches completed properties amounted to RM63.1 million, increase marginally from RM58.0 million as at end FY2019.

Total liabilities decreased 8.6% to RM558.4 million from RM611.0 million at the end FY2019. Total borrowings declined by 20.7% to RM319.5 million from RM403.1 million. Notably, long term borrowings declined significantly by 43.7% to RM166.6 million.

In line with the reduction in borrowings, net gearing decreased to 0.55 times against shareholders’ funds of RM488.4 million. Net gearing is expected to reduce further via positive cash generation from projects to be completed this financial year and sale of inventories. The Group’s net assets per share attributable to owners of the Company amounted to RM1.39 per share.

Dividends

The Board has not recommended any dividend payments for FY2020 having taken into account the underlying business fundamentals and various challenges faced by the domestic economy. Capital resources will be deployed strategically towards key projects at a measured pace. In the long term, Hua Yang possesses a strong development platform with a solid development landbank portfolio in key urban hotspots. We remain confident that we would be able to return to a steady growth and dividend trend when market conditions improve.

Property Development

In FY2020, we achieved new sales of RM200.4 million underpinned by sales from completed and ongoing projects across Landbanking key development regions. Driving the sales was MERITUS RESIDENSI on Mainland Penang, which has continued to be well taken-up despite intense market competition in the northern region. ASTETICA RESIDENCE in , Selangor, also Hua Yang did not engage in other landbanking activities in FY2020. At present, Hua Yang’s landbank for future development contributed to new sales during the year. Additionally, our key established townships of TAMAN PULAI HIJAUAN in Johor and stands at approximately 451 acres across key development regions, with a combined GDV of approximately RM5.2 billion to be BANDAR UNIVERSITI SERI ISKANDAR in Perak continued to deliver steady sales. Sales derived from these key projects made developed over a period of 5 to 7 years. up approximately 76% of total sales for FY2020.

Historical Trend in New Sales FY2020 Sales Contribution by Region Future Undeveloped Landbank by Geographical Region (As at 31 Mar 2020)

As at end FY2020, unbilled sales amounted to RM118 million, markedly lower than RM205 million as at end FY2019. The decrease can be attributed to several factors, namely; completion of several projects including retail shops at Taman Pulai Hijauan, ELEMENCE @ Taman Denai Alam Phase 1 and MERITUS RESIDENSI Phase 1, steady construction progress of all on-going projects and a disruption in sales activities brought about by the MCO in 4QFY2020. Additionally, the Group also strategically delayed new launches to prioritise marketing unsold inventories and ongoing projects. That being said, we expect unbilled sales to improve in the coming financial year, driven by the planned launch of several key projects.

During the year, Hua Yang launched RM90 million worth of new properties as we adopted a prudent and realistic approach to new project launches. Our focus remained on driving sales of our completed and on-going projects. The success of our approach is evidenced by the manageable inventory level of RM63 million and significantly improved net gearing level.

New launches in FY2020 comprised of new phases in our established townships TAMAN PULAI HIJAUAN and BANDAR UNIVERSITI SERI ISKANDAR and our new township projects at ELEMENCE @ Taman Denai Alam, Johor.

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Future GDV by Geographical Region (As at 31 Mar 2020) - ASTETICA RESIDENCES, Selangor

Total Estimated GDV : RM303 million Status : Ongoing Land size : 3.7 acres Sales of ongoing phases : 66% (as at 31 March 2020)

Strategic Investment in Magna Prima Berhad (“MPB”)

Hua Yang’s 30.95% associate company, MPB contributed a loss of RM10.1 million at the associate level, 39.2% lower than the RM16.7 million incurred in FY2019.

At the company level, MPB reported a net loss of RM34.7 million whilst revenue stood at RM30.1 million for the financial year ended 31 December 2019. Notably, the sale of shop offices in offset the weaker sales for the serviced apartments and Launched in early 2017, ASTETICA RESIDENCES, a mixed residential development, offers 520 exquisite serviced apartments shop offices at Boulevard Business Park on Jalan Kuching. In the near term, the operating performance of MPB continues to with 26 retail lots and 48 studio offices, with a total GDV of RM303 million. The two stylish-designed residential towers, 34 be negatively impacted by a prolonged industry downcycle, slow take-up rate of key development projects and an increasingly storeys and 35 storeys in height, are strategically located at the heart of matured township of Seri Kembangan, Selangor. challenging liquidity position. The design of the serviced apartments is meant to be exclusive semi-Ds and bungalows in the sky, with low density of ten units That being said, we believe that there is significant value in MPB’s landbank which are located in prime areas in the Klang Valley. per floor served by four lifts and each unit being a corner unit. A broad selection of layouts and built-up sizes are made available MPB’s net asset value stood at RM486.0 million as at end-Dec 2019, translating to RM1.46 per share. Key assets include 2.6 for large families, newly-weds as well as young adults. One of the highlights of the project is its comprehensive family-oriented acres freehold land at Jalan Ampang within the vicinity of Kuala Lumpur City Centre, 20 acres located at Seksyen 15 facilities covering approximately 16,000 sq ft (square feet) that is linked with a sky bridge on the 26th floor (double volume) of and 6.95 acres located on Jalan Gasing in . the tower blocks.

Property Development Projects ASTETICA RESIDENCES is within proximity to various well-established amenities such as The Mines Shopping Centre, The Mines 2 Shopping Mall, AEON Cheras Selatan, Columbia Asia Medical Centre, Australia International School, Bukil Jalil Stadium, Hua Yang remains committed to delivering a unique brand of quality mid-market homes in key strategic urban hotspots across Palace of The Golden Horses and many more. The project is also very well connected to various highways such as the SILK and Malaysia. The Group advocates modern yet practical concepts and designs that are tailor made to appeal to the next generation Besraya Highways and others major routes. of home buyers. The following highlights several of Hua Yang’s key development projects.

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KLANG VALLEY JOHOR - - HORIZON, Selangor ELEMENCE, TAMAN DENAI ALAM, Johor

Total Estimated GDV : RM2.05 billion Status : Soft launched Total Estimated GDV : RM375 million Status : Ongoing Land size : 29.2 acres Maiden Phase: AVIARY RESIDENCE Land size : 73.2 acres Sales of ongoing phases : 23% (as at 31 March 2020)

PUCHONG HORIZON, Hua Yang’s latest flagship mixed development, is strategically located within proximity to the bustling ELEMENCE at TAMAN DENAI ALAM is the Group’s latest township development in Johor, sitting on a 73.2-acre freehold land, Pusat Bandar Puchong district. The 29.2 acres mixed development in Klang Valley, is earmarked for an integrated residential with its initial phases debuted in October 2017. It is a continuation of the Group’s township development in Johor, namely and commercial development with GDV of approximately RM2.05 billion. TAMAN PULAI INDAH and TAMAN PULAI HIJAUAN, which started back in 1993.

Touted as the tallest residential tower in the surrounding area, the serviced apartment offers residents a bird’s eye view of This RM375 million gated and guarded township project is conveniently connected to surrounding area, such as Pasir Gudang, lakes, towns and forest reserves. AVIARY RESIDENCE’s unique features include choice designs and layouts, 3-tiered security, a the Masai town centre and Johor Bahru city centre, with excellent access to at least six major routes and highways including multi-faceted facilities floor and 2 covered car parks per unit. Senai-Desaru Expressway and East Coast Highway. Vital industrial amenities like the Johor Port and Tanjung Langsat Port are situated within a 13 kilometres radius, while Pengerang is about 80km away. Frequent flyers will also appreciate the proximity Adjacent to the matured Puchong and townships, the mixed development is well-connected via numerous of the Senai International Airport, just 55 kilometres from this new township project. highways including the Lebuhraya Damansara-Puchong, ELITE Expressway, Shah Alam Expressway and South Klang Valley Expressway. Amenities and facilities within the development include Regent International School, SEGi College Subang Jaya, ELEMENCE at TAMAN DENAI ALAM is richly designed with tree-lined avenues, recreation gardens and green pockets, with each Monash University, IOI Mall Puchong, SetiaWalk Mall, Gaint Bandar Puteri, Tesco Extra Puchong, Rakan Muda Complex, home offers spacious living spaces with cosy layouts that cater for the entire family. It is developed with Sungai Kim Kim as its Columbia Asia Hospital and many more. centrepiece and in close proximity to supermarkets, hospitals, educational institutions, banks and restaurants.

The Group is looking forward to officially roll out the maiden phase of AVIARY RESIDENCE in PUCHONG HORIZON in The maiden launch of OVAL Phase 1 in FY2018, comprising double-storey cluster houses and link bungalows with a GDV of coming financial years. The debut launch will include 565 serviced apartments in a 36-storey tower, has with an estimated GDV RM41 million, was completed and successfully handed-over to our buyers in January 2020. In FY2020, the Group has rolled-out of RM247 million. new phases comprising cluster houses and shop offices, with total estimated combined GDV of RM44 million.

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PERAK PENANG - - BANDAR UNIVERSITI SERI ISKANDAR, Ipoh MERITUS RESIDENSI, Prai, Mainland Penang

Total Estimated GDV : RM1,447 million Status : Ongoing Total Estimated GDV : RM313 million Status : Completed Land size : 777 acres Sales of ongoing phases : 80% (as at 31 March 2020) Land size : 7 acres Sales of completed phase : 85% (as at 31 March 2020)

BANDAR UNIVERSITI SERI ISKANDAR, an integrated university township, is strategically located in-between the state capital MERITUS RESIDENSI is Hua Yang’s maiden development project in Mainland Penang, strategically located near matured and southern part of Perak, approximately 35km to the southwest of Ipoh City. The 777-acre township is well-connected with commercial areas such as the Chai Leng Park and Perai Industrial Estate. The 6.8-acre freehold land is earmarked for a mixed direct access from the Ipoh-Lumut highway. development with the first phase comprises a 44-storey tower with 480 units of serviced apartments and 15 retail shops.

Built on the basis of a lifestyle that is in complete harmony with nature, the dynamic and fast-growing affordable township MERITUS RESIDENSI is strategically located near matured commercial areas such as the Chai Leng Park and Perai Industrial contains quality residential homes and commercial components fronting lakes and natural landscapes, a host of leisure and Estate, with excellent access to Jalan Baru, the North-South Expressway, Butterworth Outer Ring Road and the Penang Bridge. It entertainment facilities, in-town educational institute of higher learning, and a state-of-the-art medical centre. is also within proximity to the Mydin Mall, various hypermarkets and leisure and shopping malls, schools, hospital and medical centres. The RM1.45 billion township is nestled among a variety of amenities, which includes Tesco Superstore, a KFC drive-thru restaurant, police station, wet market, schools, banks, bus station terminals and many more. The township also has a good The 44-storey tower, which offers a dual skyline view of Penang and Butterworth with its serviced apartments almost sold, has selection of national primary and secondary schools, Islamic schools and kindergartens. Also located in the vicinity is Kolej recently completed and successfully handed over to the customers. The RM208 million project offers a variety of layouts and Vokasional Seri Iskandar, Sekolah Menengah Teknik Seri Iskandar and Institute Latihan Kemas Seri Iskandar. Healthcare modern designs, with selected units enjoying a private garden and up to 4 parking bays. facilities include clinics and a well-equipped medical centre.

BUSI has launched close to RM800 million worth of properties since its first year of launch back in 2001. With most of its previous phases launched completed and fully sold, FREESIA phase 2, ERICA phase 2 and SAKURA phase 1, are the three ongoing residential phases comprising single- and double-storey terrace houses. These ongoing phases, designed for practical and comfortable living are well-received, thus far achieved overall sales of 80% as at end-March 2020. In financial year ending 31 March 2021 (“FY2021”), the Group is looking to introduce new phases in SAKURA, comprising single-storey terrace houses with total estimated GDV of RM62 million.

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Anticipated Risks

Hua Yang operates in an environment where we will face competition from our peers. It is important that we keep ourselves relevant in understanding the market’s needs and remain committed to our core values in strengthening our brand presence in the affordable mid-market homes segment.

Construction delays would also have wide implications in affecting our performance as well as our buyers’ perception. At Hua Yang we have introduced processes for planning and monitoring of construction progress on our respective development projects. To that extent, we have established a strong track record in ensuring that projects are completed and successfully handed over to our buyers on time.

Hua Yang adopts a prudent policy to maintain a healthy balance sheet with manageable gearing and cash This would provide us with the liquidity for working capital on our development activities, and where appropriate, enable us to seek out landbanking opportunities when they arise.

Managing risks is an essential component to our ability in achieving our performance goals. Further details of our risk management can be found in the Statement On Risk Management and Internal Control of the Annual Report.

Prospects and Outlook

The property sector is expected to remain challenging in the near future. Consumers continue to be plagued by low income growth compounded by the Covid-19 pandemic that is likely to last well into FY2021. Additionally, prospective buyers struggle to obtain as institutions continue to take a prudent approach to loan approvals.

That being said, we look forward to some positives for the sector such as low interest rate environment, easing of MCO and the reintroduction of the Home Ownership Campaign (“HOC”). Among other things, the HOC allows for RPGT exemption and a lifting of the limit for the third mortgage. We expect the above factors to provide some much need stimulus for the sector in the near term.

On the company front, we continue to employ a two-pronged approach of selling existing inventory as well as current ongoing projects whilst strategically pacing new launches according to market demand. This strategy has proved fruitful as evidence by our manageable inventory levels and reduction in long-term debt.

In the coming year, we plan to launch new properties with a total estimated GDV of RM202 million. Amongst the new launches will be new phases in our existing townships of BANDAR UNIVERSITI SERI ISKANDAR in Perak comprising of single-storey terrace houses with a GDV of RM62 million. In Penang, we plan for the maiden launch of the serviced apartments and retail shops in ASTON ACACIA, Bukit Mertajam with a GDV of RM140 million.

FY2021 Planned Launches

Over the longer term, Hua Yang’s existing landbank is strategically located in key regions with a potential GDV of approximately RM5.3 billion. We expect this landbank to be developed at a measured pace over the coming years. However, Hua Yang will not hesitate to accelerate development activities when the market conditions improve and consumer sentiment turns positive.

TOTAL RM 202 mil

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