• MCT’s 1H18 net earnings sank 58% yoy to RM16.8m on slower completion rate of tail-end projects as well as lack of new launch. Overall, net earnings trailed our FY18 forecast at 24%.

• Amidst looming decade-high of total unsold residential properties in Malaysia, we think MCT has turned more cautious to launch new product to the market.

• We downgrade the stock to TRADING SELL with unchanged target price of RM0.81. We think recent rally in share price does not commensurate with bleak short-term outlook of property market, evident from its weak quarter result.

Activity slowed down on lack of new launch

MCT’s 2Q18 net profit declined 32% qoq and 53% yoy to RM6.3m as most of its running projects recognised slower completion rate due to their tail end phases of completion. Those projects include Cyberjaya’s Skypark and Lakefront Villa and Cybersouth’s Green Casa and Casa View (Phases 1B and 2B). Meanwhile, there was no launches in the quarter. Overall, 1HFY18 earnings was lower 58% yoy at RM16.8m and trailed our FY18E estimates at 24% of full year forecast.

Cautious amidst soft market

As BNM recently reported total unsold residential properties in Malaysia stood at decade-high of 146,469 units (as 2QCY17), we think the company was cautious in launching new products to better match the market demand. According to management, it currently plans to launch project with GDV of only RM188m in 2HFY18, much below our initial expectation of new launches c. RM630m. Notwithstanding, its unbilled sales as of 2QFY18 remained healthy at RM1.5bn which we think will provide earnings visibilities for next 2-3 years.

Cut earnings estimate

As the pace of new launch was sluggish, our expectation of earnings to pick up in 2HFY18 may not be materialised. As such, we bring forward some of our assumed projects to upcoming year. Hence, we cut FY18 earnings by 57% while revise higher FY19/FY20 earnings by 5%/20% respectively due to spillover effect of later-than-expected of new launch.

Valuation and recommendation.

We observe that the share price staged a good run amidst the mandatory take-over offer by Ayala to the minority shareholder. However, we think that this rally does not commensurate with bleak short-term outlook of property market, evident from MCT’s own weak quarterly result. Hence, we downgrade the stock to TRADING SELL (from HOLD) with unchanged TP of RM0.81.

Source: BIMB Securities Research - 28 Feb 2018