Results

1Q14 core PAT declined 16.2% yoy to RM38.6m, making up 23% of HLIB and consensus estimates respectively.

Deviations

Topline declined qoq and yoy due to slower revenue recognition from Hijayu 1A (Phase 1), and lower sales of industrial land in Sendayan Tech Valley (STV).

GP margin experienced sequential decline due to change in product mix, which we believe is related to lower sales of industrial land plots in STV.

Dividends

5 sen net DPS declared.

Highlights

Slow revenue recognition in 1Q. 1Q14 revenue of RM134.7m was lower yoy and qoq, which management attributes to weaker earnings contribution from its residential and industrial segments. Its residential development project, namely Hijayu 1A (Phase 1), has yet to reach a particular stage of completion for revenue recognition, but should make back for this in subsequent quarters.

Pulling the brakes on STV? We believe another reason for the slow 1Q14 was slower release of industrial land plots in its high-margin STV, which contributed to 21% of FY13 revenue. We estimate MCHB has circa 200 acres of STV land remaining and would understandably look to control the release of the prime land plots before it strikes a deal for STV 3.

Maintaining its launches. MCHB remains on-track for RM660m of launches in Seremban and Johor this year. The difference vs. the RM1.2bn as guided previously is because its high-rise project in Jalan Ipoh Kecil is likely to be pushed back to FY15, in light of the challenging market conditions. Nonetheless, we are encouraged to note that its RM251m of launches in 1Q14 is already 44% taken up, which suggests demand remains healthy.

Risks

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

Forecasts

Maintained, pending today’s analyst briefing.

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).

Source: Hong Leong Investment Bank Research - 22 May 2014