• We initiate our coverage on MKH Bhd (MKH) with a BUY recommendation and a fair value of RM3.00 per share, based on a sum-of parts (SOP) valuation.

• Founded in 1979, MKH (formerly known as Metro Kajang Holdings) is an established property developer with more than 30 years of proven track record. In 2008, it made its foray into oil palm plantation.

• While property development and oil palm plantation are MKH’s core businesses, it has diverse business interests, spanning a wide range of sectors that includes investment property, property management, construction, trading and furniture manufacturing

• Since its founding, MKH has thrived, transforming Kajang into one of the fastest-growing townships in Malaysia, becoming part of Greater Kuala Lumpur. MKH is planning a total RM948mil of new launches in FY17, focusing on affordable residential projects. Beyond FY17, it has several developments with potential GDV of RM9.0bil.

• MKH has been able to sustain its new property sales level at around the RM800mil mark for the last 3 years amidst the slowdown in the domestic property market. We believe this is due to the group staying true to its core competency, focusing on the affordable segment market.

• MKH ventured into the oil palm plantation business in 2008 by acquiring a 90-year lease on 16,000 hectares of plantation land in East Kalimantan. Today, it owns 18,388 hectares of land with “Hak Guna Usaha” (cultivation right) in East Kalimantan for oil palm plantation. With most of its oil palm trees reaching prime age in 2017 and 2018, we expect the FFB and CPO yields to improve in the next few years. Hence, we expect the division to sustain its positive growth and contribute to the group’s bottom line.

• MKH recorded outstanding revenue growth, with its FY11- FY16 5-year revenue compounded annual growth rate (CAGR) standing at 32.8%. We expect this strong track record to be sustained moving forward, anchored by its property development and plantation divisions. Its earnings growth has been more impressive than its revenue growth. It registered FY11-FY16 5-year operating profit CAGR of 52.3%, while its 5-year net profit CAGR stood at 40.1% for the same period. With a strong management team in place, we believe the group will maintain this commendable track record in the foreseeable future.

Source: AmInvest Research - 23 Jun 2017