Highlights

Referring to our report dated 22nd Feb, it has come to our attention that MCH’s second quarter sales actually amounted to RM138m instead of the RM263m which was initially communicated to us, due to an inadvertent instance of miscommunication.

We therefore now promptly issue this report to address the issue of 2Q sales. The RM138m sales still represents a 10.4% qoq improvement in sales. More importantly, this marks a reversal of five consecutive quarters of declining sales by the company.

This was achieved thanks to a strong response for Hijayu 3A Phase 1, which was 93% sold within the first two weeks of launch at an average price of RM420- 430k. This compares favourably with the 30% takeup rate for Hijayu 1A, which was priced higher at RM460k. We believe that MCH is adapting well to the challenging market conditions by adopting an astute pricing strategy to address the affordability issue for house buyers, and this reaffirms our view that developers who focus on affordable homes in growth areas will better able to adapt to the new market situation.

Another sign of MCH’s confidence is its willing to bring its upcoming launches forward, such as Third 9 Residence from 4Q14 to 3Q14. This project is located next to the Seremban International Golf Club, with overall GDV of RM145m (217 landed units). We also understand that the launch of Phase 2 of Hijayu 3A has also been brought forward (111 landed units).

Risks

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

Forecasts

Maintained.

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 P/E 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

Given the positive takeaways from its 2Q sales, we maintain our positive outlook for its future sales and earnings. We maintain our TP at RM3.74 (20 discount to RNAV), which implies FY15E P/E of 9.3x. This remains undemanding vs. 12-19x for mid to large-cap peers.

Source: Hong Leong Investment Bank Research - 24 Jul 2014