• We initiate coverage on MCT with a HOLD recommendation and target price of RM0.81

• Moving forward, the group will focus on building mid-end residential houses.

• Year-to-date MCT has close to 500 acres of landbank spreading across southern part of Klang Valley with an estimated GDV of RM15.0bn which we expect to provide earnings visibility beyond 2020.

• We are projecting a 9.6% and 13.7% yoy growth in EBITDA for FY19E and FY20E, assuming that gross margin is maintained for both years.

• Our Target Price of RM0.81 is based on sector’s mid-cap blended historical PER and PBV of 12.0x and 1.2x respectively premised on FY18E. We initiate MCT with a HOLD call.

Tapping into the Southern Klang Valley

MCT has a total landbank of close to 540-acres with 50-acres in Cyberjaya and >400-acres in Dengkil, while the remaining balance are in its flagship OneCity, a major commercial cluster development in USJ. The location of these landbank are located within 30-40 minutes driving distance to KL City Centre with direct connectivity via five major highways.

A mid-end housing developer

As estimated 80% of the products are priced below RM500k/unit based on pipeline launches of c.RM1.0bn and unbilled sales of RM2.0bn (of which RM1.0bn derived from PRIMA). We reckon this is crucial amid a flagging market with loans rejection rate looming high and affordability issue lingering on. Conservatively, we are expecting MCT to chalk up RM600m – RM800m sales for FY18-19E.

Above average margins

Thanks to its in-house construction arm without having to outsource to external contractor, MCT is able to generate higher profit margins. In comparison with peers, MCT’s historical gross profit margin was 35%- 40% vis-à-vis peers at 25%-30%.

Valuation and recommendation

We peg a target price of RM0.81 and hold recommendation. The TP for MCT is derived based on the property sector’s mid-cap blended historical PER & PBV of 12x and 1.2x respectively for FY18E. However, we do not expect MCT to pay dividend for the next 2 years. Initiate coverage with HOLD recommendation.

Source: BIMB Securities Research - 29 Sept 2017