MB World proposed to acquire 2.4 acres of freehold lands in Melaka for RM16.0m. It intends to take over a planned serviced apartment with an estimated GDV of RM169m, targeted for launch in 2H18. We are positive on the proposal as it enables the group to tap into the potential in Melaka with a quick turnaround and increase the group’s total GDV by 4.8%. The estimated NPV will increase our RNAV by 3.6% and implied land cost to GDV is competitive. The contribution from the development elevates our FY19/20 earnings by 3.3%/18.7%. Maintain BUY with higher RNAV-derived TP of RM2.85.

NEWSBREAK

MB World has proposed to acquire 2.4 acres of freehold land in Melaka via acquiring the entire equity interest in Crystal Faber Sdn Bhd (the land owner) for RM16m. A 28- storey serviced apartment called Novo 8 has been planned and approved on the land previously. MB World intends to take over and develop the serviced apartment with an estimated GDV of RM169m, targeted for launch in 2H18. The acquisition will be funded via internal generated funds and bank borrowings.

HLIB’s VIEW

Positive on the proposal as it is expected to increase the group’s effective GDV by 4.8% to circa RM3.7bn. The move enables the group to expand into Melaka to capture the rising interest in properties, boosted by the tourism-related activities. Assuming an EBIT margin of 20%, the project’s NPV is estimated at RM24m or RNAV of 15 sen per share (3.6% of our TP).

Quick turnaround and competitive land cost. The implied land cost to MB World is circa RM153.1 psf. While the implied land price on a psf basis may not look as a bargain, the land cost to estimated GDV is competitive at only 9.5% and quick turnaround can be expected given that foundation and earthworks are mostly done. Net gearing is expected to increase to 0.14x from the current level of 0.06x.

Project in the historic city. The 412 units twin tower serviced residence with a GDC of RM133m is located at the heart of Melaka Historic City Centre, a UNESCO World Heritage City. It is easily accessible via the AMJ Expressway. Surrounding amenities includes but not limited to shopping malls such AEON Bandaraya Melaka and Tesco, medical institutions, educational institutions and leisure destinations.

Forecast. We impute the contribution from the above development, resulting to higher FY19 and FY20 earnings by 3.3% and 18.7%, respectively.

Maintain BUY with higher TP of RM2.85 (from RM2.75) based on unchanged 35% discount to RNAV of RM4.39. We like MB World given its first mover advantage to capture the spill over growth effect from the RAPID project in Pengerang. Earnings growths are well supported by the unbilled sales and strong take-up of newly launched projects. Besides, potential increase in dividend following the projected strong earnings may be on the cards.

Source: Hong Leong Investment Bank Research - 4 Jun 2018