Highlights

We attended MCH’s quarterly investor’s briefing and came away feeling reassured about its outlook. Key takeaways were:

1Q14 financial highlights: Revenue and earnings weaker yoy/ qoq in the absence of sales from STV. However, there was +2.5ppts yoy margin expansion thanks to strong selling prices for its double storey terraces (now approaching RM500k/unit).

Sendayan Tech Valley (STV): No sales booked in 1Q. However, two potential transactions involving 75 acres could be struck in 2Q, likely to be in the region of RM45 psf. Given that STV has just 200 acres remaining, MCH is now being selective of its sales.

Updates on STV land replenishment. We also understand that MCH is progressing well with the land acquisition for STV 3, with 60% of the targeted land already acquired.

ASP remains strong. It is interesting to note that 1Q14 saw lower sales volume at higher prices. MCH sold 292 units in 1Q14 (-21% yoy), but ASP was +30% yoy, leading to overall sales of RM126m (+11% yoy).

Launches. MCH launched RM252m worth of projects in 1Q14 with average takeup of 40%, and will be launching further RM510m projects in Seremban and Johor. Given the modest response in 1Q14, sales performance in 2Q14 will be important.

Risks

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

Forecasts

FY14-15E earnings forecast reduced by 3.0-4.7% to reflect reduced earnings contribution from the highmargin STV land plots.

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

After updating the GDV of its projects and factoring in land value appreciation from STV, our TP is marginally changed from RM4.49 to RM4.51 (maintain 35% discount to RNAV).

We continue to like MCH on back of: (1) Further upside from escalating land prices in Seremban as more Greater KL residents continue to migrate to Seremban; (2) Optimism on its land replenishment for STV 3; (3) Undemanding FY15E PER of 6.8x vs. more than 10x for mid to large-cap developers; and (4) Still attractive FY14E DY of 5.9%, based on 40% payo

Source: Hong Leong Investment Bank Research - 23 May 2014