News

MCH disposed 2 acres of land for RM435k to a related party, namely Mr Yong Ing Kiat, who is the brother-inlaw of MCH’s managing director Dato’ Lee Tian Hock.

Financial impact

Minimal given modest amount of sales proceeds.

Pros / cons

We understand that MCH has been in the process of selling off odd lots of land which lack the necessary economies of scale for its property development plans. While it has sold other odd lots (which were not announced), given that this is a related party transaction (RPT), MCH made announcement which reflects it is cognisant of the need for transparency.

The low selling price of RM5 psf reflects the non-core nature of the land, as well as it is unconverted agricultural land which does not have any infrastructure built-in.

We remain confident that management’s vision is being executed as planned, and that it will continue to deliver sales and earnings as well as its relatively high dividend payout policy of 40%.

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 - 26 Nov 2013