MB World reported 1QFY20 core PATMI of RM9.2m (+3.8% QoQ, -48.2% YoY), forming 25.4% of our full year forecast. We deem this below expectation due to lower-than-expected progressive billing recognition coupled with the expectation of 2QFY20 to be impacted from the MCO restrictions. MB World recorded sales of RM17.7m while earnings visibility is thin as its unbilled sales only stands at 0.2x cover as of 1QFY20. We slash our FY20/21 earnings downwards by -41%/-44% and introduce FY22 earnings at RM33.5m. Maintain HOLD with an unchanged TP of RM0.99 which reflects the privatisation offer price. We believe shareholders should accept the offer given the lack of earnings visibility with thin unbilled sales, illiquidity of the stock, and offer price which is similar to our fair value of RM1.00 which is based on a 75% discount to our RNAV estimate of RM4.00 post-rollover.

Below expectations. MB World reported 1QFY20 core PATMI of RM9.2m (+3.8% QoQ, -48.2% YoY), forming 25.4% of our full year forecast. We deem this below expectation due to a lower-than-expected progressive billing recognition coupled with the expectation of 2QFY20 to be impacted from the MCO restrictions.

Dividend. None Declared

QoQ. 1QFY20 revenue marginally decreased -3.9% to RM60m from lower progressive billings. On the other hand, core PATMI marginally rose +3.8% to RM9.2m on the back of a higher margin product mix but was partially offset by a higher effective tax rate.

YoY. Revenue fell -43.1% to RM60m from lower progressive billings as 1QFY19 realised the completion of 272 units double storey terrace houses and various on going projects in Taman Sri Penawar. Subsequently, core PATMI decreased -48.2% in tandem with revenue coupled with a slightly lower margin product mix.

Outlook. MB World recorded sales of RM17.7m while earnings visibility is thin as its unbilled sales only stands at 0.17x cover (as of 1QFY20). To make matters worse, the Covid-19 pandemic has made property launches and unbilled sales replenishment rather difficult in the near-term for the property sector.

Privatisation offer. To recap, MB World’s major shareholders have announced the intention to acquire the remaining ordinary shares in MB World not held, at RM0.99 per share in hopes of privatising the company. The offer price of RM0.99 represents a 1% premium to the 5-day VWAMP price of the reference date which translates to a P/B of 0.56x.

Forecast. We slash our FY20/21 earnings downwards by -41%/-44% to reflect reduced progressive billings recognition moving forward. Subsequently, we introduce FY22 earnings at RM33.5m. Maintain HOLD with an unchanged TP of RM0.99 which reflects the privatisation offer price. We believe shareholders should accept the offer given the lack of earnings visibility with thin unbilled sales, illiquidity of the stock, and offer price which is similar to our fair value of RM1.00 which is based on a 75% discount to our RNAV estimate of RM4.00 post-rollover

Source: Hong Leong Investment Bank Research - 2 Jul 2020