MB World’s 1H18 core PATMI of RM32.8m (+226.6% YoY) was above expectation, mainly due to higher than expected margin. The higher QoQ and YoY results were attributable to higher progressive contributions from the ongoing and new phases of development in Taman Sri Penawar. Unbilled sales was at 0.93x cover and total new sales is on course to meet full year target. FY18/19/20 earnings are lifted by 5.7%/5.1%/0.7%, having adjusted for higher margin. Maintain BUY call with higher RNAV-derived TP (40% discount) of RM2.65. We continue to like MB World as proxy to the Pengerang growth story, trading at attractive forward P/E of 4.4x.

Above expectation. 1H18 revenue of RM165.5m translated into a core PATMI of RM32.8m, accounting for 72.0% of our full year forecast. The results exceed our expectation mainly due to higher than expected margin with the handover of its single storey terrace house in Taman Sri Penawar in 2Q. FY18 is poised for a record earnings year after having almost matched FY17 full year earnings in 1H18 alone.

QoQ. 2Q18 revenue improved by 22.9% mainly attributable from the improved recognition of ongoing projects in Taman Sri Penawar, on top of the completion of its 265 units of single-storey terrace house. Core PATMI stood at RM22.1m (+105.2%) in tandem with the higher revenue and improved margin.

YoY. Revenue grew more than double to 137.6% driven by the contributions from the existing and new phases of projects in Taman Sri Penawar. Similarly, core PATMI improved more than two-fold (+253.9%) thanks to the higher overall revenue and improved margin from the current product mix.

YTD. 1H18 revenue increased by 144.2%, mainly driven by the contributions from higher progress billing of ongoing projects and handover of its single-storey terrace house in Taman Sri Penawar. Core PATMI jumped to RM32.8m (+226.6%), growing in tandem with the higher revenue.

Outlook. We expect weaker 2H18 in the absence of major completion of project as 2Q results were elevated by the handover of 265 units single storey terrace house. Unbilled sales stood at RM216m (1x cover ratio) and the take-up rate of its projects remain healthy at ~79%. Total new sales of RM51m achieved in 2Q18, bringing YTD sales to RM124m, on course to meet full year target of RM231m. Notably, the recent launch of Novo 8 Residence in Melaka (GDV: RM169m) in August is expected to contribute positively in FY19 and FY20, respectively.

Forecast. In view of the stronger than expected results, our FY18/19/20 earnings are lifted by 5.7%/5.1%/0.7% respectively, after imputed higher margin for its developments in Bandar Sri Penawar. Our TP of is raised to RM2.65 (from RM2.63) based on unchanged 40% discount to RNAV of RM4.42. Maintain BUY as we continue to like MB World given its first mover advantage to capture the spillover 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 strong earnings at attractive forward P/E of 4.4x are among the positives.

Source: Hong Leong Investment Bank Research - 21 Aug 2018