MB World will essentially be acquiring a land in Johor Bahru City Centre measuring 7 acres for a total consideration of RM58.3m. We are positive on the news as the land has been approved for the development of serviced apartments. With an EBIT margin of 17.5% and a tentative launch date in FY20, the potential effective NPV of the project is estimated at RM35.9m or 5% of estimated RNAV. As at 1QFY19, MB World had a net gearing position of 0.34x. Our pro-forma calculation implies that the company will widen its net gearing position to 0.57x post acquisition of PPSB and settlement of the land. No change to forecast as the target launch date remains rather fluid at this juncture. Maintain BUY with an unchanged TP of RM2.75 based on 40% discount to RNAV of RM4.59.

NEWSBREAK

MB World has executed a SSA to acquire Parkwood Palms Sdn Bhd (PPSB) from Tropical Land Sdn Bhd for a consideration of RM7m. PPSB has entered into an agreement last year to purchase a freehold land in Bandar Johor Bahru measuring 7.6 acres (330k sqft) for RM57m (10% deposit has already been paid by PPSB). Through the acquisition of PPSB, MB World will now have to fork out the balance RM51.3m for the said land on top of the RM7m to acquire PPSB.

HLIB’s VIEW

Positive on the news. We are positive on the acquisition as the land has been approved for the development of serviced apartments with an estimated GDV of RM542m. Management guided for a possible launch in FY20 but we sense that it seems rather fluid at this juncture. With an EBIT margin of 17.5% (after taking into account the GDC of RM389m and total land acquisition cost of RM58.3m) and a tentative launch date in FY20, the potential effective NPV of the project is estimated at RM35.9m or 5% of estimated RNAV.

The land. The land acquisition of RM177psf is fair given its ability to garner an EBIT margin of 17.5% and an approved development plan. The said land is located within Flagship A of Johor Bahru City Centre under Iskandar Malaysia development region. Surrounding areas (within 5km radius) include ongoing mixed residential, varied businesses, commercial, hotel, government offices.

Impact to net gearing. As at 1QFY19, MB World had a net gearing position of 0.34x. Our pro-forma calculation implies that the company will widen its net gearing position to 0.57x post acquisition of PPSB and settlement of the land.

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. Management has yet to disclose the sales target for FY19; we can expect over RM400m worth of GDV launches in FY19.

Forecast. We maintain our earnings forecast to remain conservative as the targeted launch date for the service apartments seems rather fluid at this juncture.

Maintain BUY with unchanged TP of RM2.75 based on 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 - 11 Jun 2019