• FY9/23 core net profit of RM70.4m only accounted for 88% of our forecast due to lower-than-expected earnings contribution from the plantation segment.

• Property sales were higher yoy at RM513m. Unbilled sales stood at RM841m.

• SOP-based TP raised to RM1.44. Reiterate Hold as positives from the property segment are dragged down by the weaker plantation business.

Earnings Dragged by Plantation Segment

In 4QFY9/23, MKH reported core net profit (excluding impairments and forex loss) of RM17.5m (+71% yoy, +16% qoq) on the back of 21% yoy growth in revenue. However, FY9/23 core net profit of RM70.4m was 32% lower yoy on higher effective tax rate of 31% (vs. 25% in FY22) and lower EBITDA margin of 16% (vs. 23% in FY22). This only accounted for 88% of our FY9/23 forecast. For FY9/23, the group declared a higher dividend of 4 sen (FY22: 3.5 sen).

Higher FY9/23 New Property Sales of RM513m

FY23 new property sales came in higher yoy at RM513m (vs. RM493m in FY22), lifted by TR2 Residence (RM229m), Akina @ Kajang 2 (RM99m) and Mirai Residences (RM54m). Management guided that, for FY9/24, it plans to launch total gross development value (GDV) of c.RM640m with continued focus on affordable residential projects targeting genuine homebuyers. Planned developments in the pipeline include Mahkota Cheras Residences (serviced apartment), Annya @ Kajang 2 and Mirai Residences 2. As at Sep 23, the group’s unbilled sales stood at RM841m (c.0.8x cover ratio). MKH’s remaining landbank of 627.5 acres is mostly located in Kajang (93%), with a total estimated GDV of RM8.9bn.

Plantation Segment Saw Increased Cost and Lower CPO Price

For FY9/23, the plantation segment registered a lower PBT of RM37.5m (vs. RM76.6m in FY22) due to reduced sales of palm kernel, lower average selling price (ASP) of RM1,589/MT (vs. RM2,627 in FY9/22) and higher production cost. However, the impact was mitigated by increased CPO sales volume of 92,607MT with ASP of RM3,348/MT (vs. 71k MT and ASP of RM3,847/MT in FY22).

TP Raised to RM1.44; Reiterate Hold

We cut our FY24/25F EPS by 11.8%/9.6% after: i) updating for FY23 earnings, and ii) factoring in higher production costs for its plantation segment. We also introduce FY26F forecasts. Our SOP-based TP rises to RM1.44 as we roll over valuations to FY24. Reiterate Hold as positives from the property segment are mitigated by the plantation business. Downside risks are delays in planned launches and further deterioration in CPO prices, which will negatively impact MKH’s earnings growth. Upside risks include a significant recovery in CPO prices, which should boost revenue and earnings contributions from its plantation segment, and stronger-than-expected property sales.

Source: CGS-CIMB Research - 4 Dec 2023