Highlights

MCH has just gone ex for its 1-for-2 bonus issue. We maintain our BUY call but increase our TP, as we cut our discount to RNAV from 35% to 20%

Following a slowdown in sales after last year’s cooling measures, take-up is now on the uptick, with 2Q recovering strongly (RM263m, Figure #2). The main contributors in 2Q were Hijayu 1A (RM32m) and Hijayu 3A Phase 1 (93% sold within first two weeks of launch at an average price of RM420-430k). This compares well with the soft 40% take-up rate for its RM252m launches in 1Q14. The strong surge in sales volume bodes well for MCH’s sales and earnings outlook.

We also understand MCH could be looking to bring forward its launch for Third 9 Residence from 4Q14 to 3Q14, which underpins its confidence. This project is located next to the Seremban International Golf Club, with overall GDV of RM145m (217 landed units).

Sendayan Tech Valley (STV): MCH sold 20 acres at RM40 psf and we understand it is currently in talks with 10 potential parties for another 100 acres. Average selling price is now raised to RM42psf.

Updates on STV land replenishment. Recall in the last briefing, MCH has acquired 60% of the land for STV 3, but has not made any progress thus far with the balance 40% of land owners.

Risks

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

Forecasts

Maintained, but EPS forecast adjusted for bonus issue.

Rating

BUY

Positives: 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 7.3x vs. more than 12-19x for mid to large-cap developers; and (4) Still attractive FY14E DY of 5.5%, based on 40% payout ratio.

Negatives: Lack of landbank diversification means the company’s fate is completely tied to that of Seremban.

Valuation

We have factored in the issuance of the new 152m bonus issue shares into the RNAV. As a result, our RNAV estimate has been adjusted from RM6.94 to RM4.67.

Given the strong surge in sales in 2Q, we are positive on its sales outlook for the rest of 2014 and we are reducing our discount to RNAV from 35% to 20%.

Our new TP of RM3.74 implies FY15E P/E of 9.3x, which remains undemanding vs. 12-19x for mid to large-cap peers.

Source:Hong Leong Investment Bank Research- 22 Jul 2014