• MCT 1Q17 net earnings declined 42% qoq and 34% yoy on slower revenue recognition due to near-completion projects. Overall, core earnings were below our estimate at 15% of full year forecast.

• The company identified several key projects with GDV of RM400m to be launched in FY18. With focus on affordable housing segments, we believe sales would improve in coming quarters.

• We retain our HOLD recommendation on the stock with unchanged target price of RM0.81.

Earnings declined as projects near completion

MCT’s 1Q18 net profit declined 42% qoq and 34% yoy to RM10.5m on the back of slower revenue recognition due to the lack of new launches during the quarter while most of its existing projects were near completion. Lists of those projects include Cyberjaya’s Skypark and Lakefront Villa and Cybersouth’s Green Casa and Casa View (Phases 1B and 2B). Overall, 1QFY18 earnings trailed our FY18E estimates at 15% of full year forecast.

Future development is underway

MCT is currently underway with its planning for future phases for existing land bank. Several key projects with a GDV of RM400m have been identified to be launched in FY18. This includes the Cyber ONE – a project set across 7.2 acres of freehold land located next to Lim Kok Wing University. Besides that, it looks forward to launch the linked-houses project (est. GDV: RM173m) and commercial unit (est. GDV: RM56m) at Cybersouth. As such, we believe its new sales and revenue will improve in upcoming quarters.

Focus remained on affordable segments

As industry studies showed a supply overhang in the market for properties above 1mil, we believed MCT would be less impacted as it has significantly disposed of its existing ageing inventories. Instead, it has placed itself as one of the players in the affordable segments with product prices ranging from RM100k-400k.

Valuation and recommendation

We retain our HOLD recommendation on the stock with target price of RM0.81. Our target price is based on the property stock’s mid-cap blended historical PER and PBV of 12x and 1.2x respectively for FY18. We think recent weakness in share price is fair amidst the weak quarter results.

Source: BIMB Securities Research - 29 Nov 2017