Highlights

We attended MCH’s quarterly investor’s briefing and were heartened to note it was well-attended by 40-50 fund managers and analysts. Key highlights:

Earnings continuity blueprint. Given our estimated 100 acres of industrial plots sales in Sendayan Tech Valley (STV) in 2013, we estimate the balance 244 acres will only deplete in 1-2 years’ time. As STV provides the highest gross margins (circa 50% and rising), continuity from this segment will be important for earnings visibility.

Land banking strategy. We understand that managements’ focus is on acquiring land adjacent to STV 1 & 2, to be named STV 3. Whilst pricing and acreage have yet to be ascertained, we believe management should be able to secure the land parcel at a good price to ensure continuity of earnings.

Rising land prices a sign of prosperity. As of 2Q, STV factory plots were transacting at RM36 psf, but are now commanding RM40-45 psf. Due to overwhelming demand, MCH is likely to raise prices by another 10% come January, as it is entertaining numerous enquiries from factory owners in Greater KL (GKL) planning to relocate to STV. Similarly, its double-storey terrace houses which were previously selling for RM360k per unit are now touching RM460k per unit, with GKL buyers making up 40% of sales.

4Q dividend update. Even though MCH has already met our FY13 dividend estimate within 9M, we understand it intends to maintain its dividend payout in 4Q. We impute a 5.0 sen DPS estimate for 4Q.

Good earnings visibility, with unbilled sales standing at RM392m as of 3Q (0.86x FY12 revenue).

Risks

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

Forecasts

Maintained.

Rating

BUY

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

Maintain TP at RM4.51 (35% discount to RNAV).

We continue to favour MCH as our sector top pick on back of: (1) Our conviction that more upside remains thanks to escalating land prices in Seremban as more Greater KL residents continue to migrate to Seremban; (2) Undemanding FY14E PER of 5.7x vs. more than 10x for mid to large cap developers; and (3) Still attractive FY14E DY of 7.0%, based on 40% payout ratio.

Source: Hong Leong Investment Bank Research - 21 Nov 2013