MB World reported 4QFY19 core PATMI of RM8.8m (-35.7% QoQ, +0.1% YoY), which brings the FY19 sum to RM54.7m (+13% YoY), forming 86.7% of our full year forecast. Management remains cautious on FY20 amidst the current weak property market sentiments and stringent lending requirements set by financial institutions. FY20 earnings will continue to be driven by existing projects in Novo 8 Residence and Taman Sri Penawar. We revise our FY21/22 earnings downwards by -14.2%/-11.1% to reflect reduced progressive billings recognition moving forward. Maintain BUY but with a lower TP of RM1.80 (from RM2.24) based on a higher discount at 60% (from 50%) to RNAV of RM4.60.

Below expectations. MB World reported 4QFY19 core PATMI of RM8.8m (-35.7% QoQ, +0.1% YoY), which brings the FY19 sum to RM54.7m (+13% YoY), forming 86.7% of our full year forecast. The results were below expectations due to a lower than-expected progressive billing but nonetheless FY19 remains a record year.

Dividend. None Declared

QoQ. 4Q19 revenue decreased -21.3% to RM62.4m (from RM79.3m) from lower progressive billings. Consequently, core PATMI fell -35.7% to RM8.8m (from RM13.7m) in tandem with revenue but was cushioned by a lower effective tax rate.

YoY. Revenue fell -19.9% from RM77.9m from lower progressive billings. However, core PATMI remained flat at RM8.8m (+0.1%) from a higher margin product mix i.e. Novo 8 Residence, Melaka.

YTD. Revenue rose +17.6% to RM337.6 (from RM287m) due higher recognition of progressive billings from projects in Taman Sri Penawar and Novo 8 Residence. Consequently, core PATMI increased 13% to RM54.7m (from RM48.4m) in tandem with revenue but was slightly dragged by a higher effective tax rate.

Sales status. The 4Q19 sales and unbilled sales figures have yet to be provided but we note that as at 3Q19, unbilled sales stood at RM134.4m, representing a cover ratio of 0.4x.

Outlook. Management remains cautious on FY20 amidst the current weak property market sentiments and stringent lending requirements set by financial institutions. FY20 earnings will continue to be driven by existing projects in Novo 8 Residence and Taman Sri Penawar.

Forecast. We revise our FY21/22 earnings downwards by -14.2%/-11.1% to reflect reduced progressive billings recognition moving forward. Maintain BUY but with a lower TP of RM1.80 (from RM2.24) based on a higher discount at 60% (from 50%) to RNAV of RM4.60 to reflect the weak property sentiment coupled with a thin cover ratio. Nonetheless, 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 - 27 Feb 2020