Results

2Q13 core PAT rose 16.2% yoy to RM69.8m, with YTD earnings of RM139m making up 46% and 49% of HLIB and consensus estimates respectively.

Deviations

Due to our overly bullish forecast for progress billings, which we have rectified accordingly.

Dividends

None

Highlights

Favourable product mix in 2Q. Gross profit margin improved 4.1 ppts yoy to 33%, thanks to favourable changes in property product mix and higher profit recognition from properties handed over to buyers.

Record unbilled sales of RM3.9bn is 2.5x last year’s development revenue and ensures high earnings visibility.

RM3bn sales target on-track, thanks to 1H sales of approximately RM1.5bn.

Rawang expansion. MSGB acquired 96.7 acres of land in Rawang for RM68.7m (RM16.30 psf) to be developed as gated and guarded township named M Residence 3 (MR3), with GDV estimated at RM520m. This brings its Rawang township landbank to 480 acres fetching RM2.13bn in combined GDV. Of note, this land parcel is located next to Glomac’s Saujana Rawang. Preview is expected to commence in 2H 2014.

Replenishment exercise. M Residence@Rawang has reached tail-end of sales with 2-storey Super Link homes (22’ x 80’) in Phase 4 scheduled for launch in Sep 2013. Therefore, the MR3 land acquisition is timely in allowing MSGB to continue tap the Rawang market, which we expect will continue to enjoy robust takeup rates.

Adding to the pipeline. The MR3 acquisition brings its project pipeline GDV to RM24bn, which we estimate will be able to sustain earnings well beyond 2020.

Risks

Slower than expected sales; execution risks for projects; inability to replenish landbank.

Forecasts

Following guidance from management, we have fine tuned our forecasts to a more achievable level. Previously we had forecasted 31% yoy EPS growth in FY13 but we have toned this down to 20%, or RM277m.

Rating

HOLD

Given weakness in share price, we believe that negative sentiment in the sector has been priced-in and share price now appears fair, in view of potential more prudential measures, at 8.8x FY14E P/E.

Valuation

Following MSGB’s change in share base post the bonus issue, we have tweaked our RNAV calculations. Given the current challenging investment climate, we have also raised our discount to RNAV from 45% to 55% and trimmed TP from RM2.38 to RM2.10.

Source: Hong Leong Investment Bank Research - 28 Aug 2013