Highlights

We attended MCHB’s briefing and came away reassured that management is making the right moves.

KL project updates. MCHB is postponing the launch to after Apr 2015 (instead of this year), given the uncertain sentiment in the KL property market. The good news is that the GDV should be significantly higher than the RM250m guided originally given: (1) This project is being re-positioned to a higher-end concept, with the ASP likely to be significantly above the RM700-800 psf originally planned, and (2) Its plot ratio has been successfully raised from 8x to 9x.

Bandar Sri Sendayan (BSS) extension wings. Recall MCHB acquired two parcels in Seremban in July 2013 (431 acres, RM5.70 psf), and we understand this could yield RM3-4m GDV per acre, translating into RM1.6bn of future GDV, which makes up close to 25% of its future GDV. MCHB has obtained the necessary approvals in July and is mulling smaller and more affordable units in the extension wing of BSS. We concur with this move given the success of Hijayu 3A Phase 1, which achieve >90% takeup within 2 weeks thanks to its smaller size and affordable pricing (RM420k/unit vs. RM460k/unit for Hijayu 1A).

2014 sales outlook. Management declined to commit to a sales target for FY14, as it concedes the overall market remains challenging. MCHB racked up RM788m sales last year (inclusive of STV) and 1H14 sales of RM291m translates to 37% run-rate.

How to make up for the “shortfall”? MCHB has RM720m of existing projects yet to be sold, and is launching RM410m of projects in 2H14. Moreover, we understand that it is close to striking industrial land deals for STV, possibly up to 35 acres.

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 8.0x vs. more than 12-18x for mid to large-cap developers; and (4) Still attractive FY14E DY of 5.0%, based on 40% payout ratio.

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

Valuation

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- 21 Aug 2014