MB World’s 9M18 core PATMI of RM42.4m (+154% YoY) was above expectation mainly due to higher-than-expected margin. Earnings YTD more than doubled and has exceeded FY17 full year earnings. Unbilled sales were at 0.9x cover and total new sales have surpassed the full year target. FY18/19/20 earnings are lifted by 3.6%/3.9%/3.0% after adjusted for higher margin. Maintain BUY call with higher RNAV-derived TP (40% discount) of RM2.68. We continue to like MB World as a proxy to the Pengerang growth story, trading at an attractive forward P/E of 5x.

Above expectation. 9M18 revenue of RM209.1m translated into a core PATMI of RM42.2m, accounting for 87.5% of our full year forecast. The results exceeded our expectation mainly due to higher-than-expected margin. Notably, 9M18 earnings have already exceeded FY17 full year earnings, setting for a record-breaking year.

Dividends. Declared interim dividend of 6.9 sen per share (ex-date: 24 Jan 2019) (3Q17: None) which has also exceeded our FY18 dividend forecast of 6.1 sen per share.

QoQ. 3Q18 revenue declined 52.3% due to the high base effect where 256 units single-storey terrace house project in Taman Sri Penawar were handed over in 2Q18. Consequently, core PATAMI declined 57.6% in tandem with the decline in revenue.

YoY. Revenue declined 27.4% mainly due to the absence of contributions from the Pinnacle Tower project which was completed back in 4Q17. However, core PATAMI improved 42.7% on the back of lower marketing expense and better margins from the existing township in Taman Sri Penawar.

YTD. 9M18 revenue increased by 63.6%, attributed to higher sales and progress from the Taman Sri Penawar projects. Core PATAMI more than double on the back of improved margins from the existing projects in Taman Sri Penawar.

Unbilled sales. Stood at RM203m (0.9x cover ratio) and the take-up rate of its projects remain healthy at ~83%. Total new sales of RM115.9m achieved in 3Q18, bringing YTD sales to RM311.9m, surpassing the full year target of RM231m.

Outlook. FY18 is a record-breaking year for MB World with the contributions from the major projects of Taman Sri Penawar. We note that 4Q18 may be a relatively weaker quarter as 1H18 was supported by the handover of 265 units single storey terrace house. FY19 will continue to scale higher with the extra contribution from their maiden project Melaka (Novo 8 Residence) while Taman Sri Penawar will continue to anchor the earnings base.

Forecast. In view of the stronger-than-expected results, our FY18/19/20 earnings are lifted by 3.6%/3.9%/3.0%, respectively after imputing higher margins for its developments.

Our TP of is raised to RM2.68 (from RM2.65) based on unchanged 40% discount to RNAV of RM4.46. Maintain BUY as we continue to like MB World given its first mover advantage to capture the spill over growth effect from the RAPID project in Pengerang. Earnings growth is 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 5x are among the positives.

Source: Hong Leong Investment Bank Research - 29 Nov 2018