MB World’s 1QFY19 core PATMI of RM17.7m was slightly above expectations. New sales of RM56.6m were achieved in 1QFY19 while unbilled sales stood at RM220.8m, representing a cover ratio of 0.8x. 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. We increase our earnings forecast by 2.7%/26.9% for FY19/FY20 to reflect improved contributions from the projects in Taman Sri Penawar and introduce FY21 numbers with core PATMI at RM74.6m. We maintain our BUY call with a higher RNAV-derived TP (40% discount) of RM2.75. We continue to like MB World as a proxy to the Pengerang growth story, trading at an attractive forward P/E of 4x.

Above expectations. 1QFY19 revenue of RM105.5m translated into a core PATMI of RM17.7m, accounting for 28% of our full year forecast. The results were above our expectations due to a higher than expected margin product mix and percentage of completion of projects in Taman Sri Penawar. No dividends were declared.

QoQ/YoY. 1Q19 revenue increased 35.3%/42% to RM105.5m (from RM77.9m/RM74.3m) largely due to a higher percentage of completion of projects in Taman Sri Penawar. Consequently, core PATMI increased 100.4%/64.1% to RM17.7m (from RM8.8m/RM10.8) in tandem with revenue coupled with a higher margin product mix.

Sales status. New sales of RM56.6m was achieved in 1Q19 while unbilled sales stood at RM220.8m (4Q18: RM262m), representing a cover ratio of 0.8x. Management is expecting to launch projects worth up to RM553m GDV in FY19. The breakdown of the projects is as follows: i) Taman Sri Penawar, RM267m; ii) Puteri Senibong, RM47m; iii) Ayana Residence, RM82m; and iv) Sierra Residence, RM157m. As such, we believe the FY19 sales target of RM300m to be achievable upon the launch of these projects.

Outlook. 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. Recall that FY18 had launches worth up to RM623m from these projects. With regards to sales target, management is targeting RM300m for FY19.

Forecast. We increase our earnings forecast by 2.7%/26.9% for FY19/FY20 to RM63.2m/RM65.5m to reflect improved contributions from the projects in Taman Sri Penawar and introduce FY21 numbers with core PATMI at RM74.6m. Note that our previous FY20 forecast had understated the potential contributions from GDV launches back in FY18. Maintain BUY with a higher TP of RM2.75 (from RM2.68) based on unchanged 40% discount to RNAV of RM4.59. 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 4x are among the positives.

Source: Hong Leong Investment Bank Research - 30 May 2019