Results

• Within Expectations: MSGB’s 1QFY16 core PATAMI increased 14% QoQ, accounting for 25% of our and consensus full year forecasts.

Dividends

• None.

Highlights

• 1QFY16 revenue fell 8% QoQ as M City and Icon City projects are approaching completion. For subsequent quarters, revenue should pick up momentum due to progress recognition from Southville, Dsara Sentral and Lakeville.

• In 1QFY16, MSGB achieved new property sales of RM408m (versus RM700m in 4Q15). Majority of contribution were from existing launches given the only new launch was the landed link homes in Meridian East, Pasir Gudang with GDV of RM133m (80% take up in less than 2 months). New sales in Jan-Apr16 picked up to RM536m, accounting for 23% of full year sales target of RM2.3bn.

• Management remains confident to achieve full year sales target (flat YoY) with the planned upcoming launches worth of RM1.8bn. Upcoming major launches including Cerrado services apartments in SouthVille (from RM388k/unit), Lakeville Residence (from RM595k/unit), MResidences 1,2,3 in Rawang (from RM593k/unit), Dsara Sental (from RM580k/unit) and Ferringhi Residence 2 (from RM650k/unit).

• MSGB will continue to focus on the mass market with affordable pricing. 70% of planned launches for 2016 are priced below RM700k.

• Unbilled sales decreased slightly from RM4.75bn to RM4.5bn, representing 1.6x of FY15 property revenue. Balance sheet remains solid with net gearing of merely 0.09x, provides rooms for potential land acquisitions amidst industry downturn.

Risks

• Slower than expected sales; execution risks for projects; inability to replenish landbank.

Forecasts

• Unchanged.

Rating

HOLD

• Healthy balance sheet with low net gearing; and attractive dividend yield of 4.2% based on minimum dividend payout of 40%.

Valuation

TP is unchanged at RM1.41 (maintain 40% discount to RNAV). Maintain HOLD with dividend yield of 4.2%.

Source: Hong Leong Investment Bank Research - 27 May 2016