Highlights

We attended MCH’s quarterly investor’s briefing and noted that it was well-attended by 40-50 fund managers and analysts. Key takeaways were:

FY13 financial highlights: FY13 ended on a strong note, with 4Q net profit rising 12.3% qoq, driven mainly by increased take-up and progress billings from residential projects at Bandar Sri Sendeyan (BSS). 4Q has a favourable product mix from the higher-priced double-storey terraces (DST).

Sendayan Tech Valley (STV): Sales of industrial plots in STV contributed to 21% of FY13 revenue, up from 17.5% in FY12. As this represents the highest-margin segment for BSS, earnings continuity is an issue. STV has balance of 244 acres worth RM377m, which we estimate will last another 2-3 years. Of note, STV has to-date attracted FDI worth RM2.8bn cumulatively. Indeed, the key re-rating catalyst for MCHB will be major land acquisitions, be it for STV or BSS as a whole.

Earnings visibility: MCHB has RM1.2bn of pipeline, of which circa RM800m are from ongoing launches. Combined with RM437m in unbilled sales and soaring demand for industrial and residential properties in Seremban (average project take-up ex STV: 82%; STV industrial plots transacting at RM40-45 psf), we remain confident of the group’s earnings outlook.

Adding value to BSS. Matrix Global School is slated for completion by end 2014, with the first intake to commence in 2015. Meanwhile, MCBH is targeting a mid-2014 completion date for the club house.

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 RM4.49 (35% discount to RNAV).

We continue to favour MCH as one of our sector top picks on back of: (1) Our conviction that further upside remains thanks to escalating land prices in Seremban as more Greater KL residents continue to migrate to Seremban; (2) Undemanding FY15E PER of 5.9x vs. more than 10x for mid to large-cap developers; and (3) Still attractive FY14E DY of 6.8%, based on 40% payout ratio.

Source: Hong Leong Investment Bank Research - 27 Feb 2014