News

MCHB has acquired two parcels of land in Seremban at a blended price of RM5.70 psf.

Parcel A (194 acres, RM7 psf) is immediately adjacent to Bandar Seri Sendayan (BSS), while Parcel B (237 acres, RM4.60 psf) is located 5 km away (Figure #1).

Both parcels will comprise of shops and landed houses with GDV of RM800m and RM760m respectively.

Financial impact

Transforming to net debt… We estimate that the RM107m outlay will cause MCHB to change from net cash to net debt position, but with a still-modest 0.2x net gearing.

Gearing headroom… We also estimate that MCHB still has RM210m of gearing headroom before net gearing reaches the 0.5x mark.

A long wait… MCHB expects the projects to begin to contribute to earnings only in FY15-16 onwards, due to the green field nature of the development, as both parcels of land are still agriculture land.

RNAV impact… This land acquisition adds 25 sen to our diluted RNAV estimate of MCHB

Pros / Cons

Great land price… We are positive on the deal as MCHB has secured RM1.5bn in new GDV for itself, whilst land cost makes up less than 7% of GDV, which will translate into strong margins for MCHB.

Enhancing earnings visibility… Whilst the earnings catalyst is somewhat long-dated, this is a major longterm boost for MCHB’s earnings given that it boosts its balance GDV from RM5.0bn to RM6.5bn.

Wheeler dealer…We foresee MCHB will evolve into a dominant developer in the area, similar to YNH in Sitiawan, by continuously acquiring nearby land parcels to continuously expand its township developments. In turn, this will continue to help create population critical mass and cause property values in Seremban to increase.

Concentration risk… However, this also means that MCHB will become even more reliant than ever on the overall economic wellbeing of Seremban.

Risks

Slowdown in sales; escalation in construction and raw material costs; downturn in Seremban and Johor.

Forecasts

Maintained.

Rating

HOLD

Positives: Offers great exposure to the thriving satellite town of Seremban.

Negatives: Lack of landbank diversification means the company’s fate is completely tied to that of Seremban.

Valuation

After factoring in the new projects, we revise our TP from RM2.59 to RM2.77 (maintain 25% discount to RNAV).

Source: Hong Leong Investment Bank Research - 10 Jul 2013