Results

2Q14 core PAT rose 41.3% yoy to RM42.4m, with YTD net profit of RM81m making up 49% of both HLIB and consensus estimates.

Deviations

None.

Dividends

3.8 sen net DPS was declared in 2Q14, bringing YTD DPS to 7.1 sen, or 49.3% of our 14.3 sen DPS forecast.

Highlights

Pickup in progress billings. Following a weak 1Q which saw both yoy and qoq decline in topline and earnings, 2Q has made an encouraging recovery. Recall that 1Q earnings was weaker in the absence of STV land sales and slower revenue recognition from Hijayu 1A (Phase 1). This project has now hit its milestone and registered stronger earnings recognition in 2Q, and MCHB achieved RM18.9m industrial land sales for 10.5 acres in STV. This led to qoq recovery for both the topline and bottomline.

Yoy: Higher margin from Hijayu 1A. Gross margin jumped 9.2ppts yoy, an encouraging sign. Apart from the STV land sales, we also believe margin expansion came about from stronger recognition of Hijayu 1A, which would have stronger margins given its relatively higher ASP of RM460k. In comparison, the group’s launches last year were mostly below the RM400k threshold.

Qoq: Higher capex costs. Gross margin declined 4.8 ppts qoq, which MCHB attributes to the pre-operating expenses incurred for the Matrix Global Schools and the Group’s clubhouse constructed for the use of the residents of its Bandari Sri Sendayan township.

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 8.1x vs. more than 12-19x for mid to large-cap developers; and (4) Still attractive FY14E DY of 4.9%, 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 group’s improved sales (Figure #4) and earnings recovery in 2Q, 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. 12-18x for mid to large-cap peers.

Source: Hong Leong Investment Bank Research - 20 Aug 2014