· A Klang Valley based developer. The group has a total landbank of 540ac and management only guided for total GDV of RM10.1b (RM8.9b remaining GDV), which only accounted for 45% of the group’s total landbank. The landbanks excluded in management’s guidance are Cyberjaya (7.0 ac) and Dengkil (289.0 ac). Based on a GDV/ac ratio of RM74.5m for Cyberjaya and RM7.8m for Dengkil, we derive an additional GDV of RM2.8b, which will imply a total GDV of RM11.7b for the group. We note that our GDV estimates may be conservative as these future projects could carry higher GDVs later. Assuming RM1.0b sales this year with a 10% increase p.a., company’s visibility could stretch as long as 11-12 years. · The group has recently completed a reverse take-over (RTO) by MCT Consortium Berhad, and changed its name from GW Plastics to MCT Bhd. Prior to that, GW Plastics was a PN17 company after selling off its plastic business to Scientex Packaging Film. The new entity was listed on 6th April 2015.

· Growing exposure to affordable housing. MCT is tapping into the affordable housing segment (<RM500k/unit) in the Klang Valley, accounting for RM2.2b of remaining GDV (or 25% of remaining GDV). We favour developers that venture into the affordable housing segment, especially in the Klang Valley, where lower income earners have been priced-out. Most of MCT’s affordable range projects comprise of Rumah Selangorku units which are targeted for mass market demand, and as such we believe these units will be taken up. Additionally, this project is an initiative with the Selangor state Government, and as such will be allocated by the state government to qualified individuals. Thus, minimising marketing and advertising cost for MCT.

· Healthy balance sheet post corporate exercise allows for more landbanking and possible dividends? MCT had a high net gearing of 1.04x- 0.75x in FY13-FY14. However, MCT will be in a net cash position of 0.15x post the corporate exercise as it will raise gross proceeds of RM377.0m. This will allow MCT to replenish its landbank within Klang Valley and we estimate that they can borrow close to RM0.7b before reaching the average net gearing level of 0.3x for developers under our coverage. Assuming that land cost is 10%-15% of GDV, based on today’s land prices in Klang Valley, this would imply a GDV replenishment of RM4.6b-RM7.0b, which is will significantly boost estimated total GDV by 39%-60% to RM16.3b-RM18.7b.

· Dividend policy? Not yet. MCT’s deep net cash position also allows them to consider a dividend policy. There is no official policy at the moment. If they do implement a dividend policy (developers’ range: 30%-50% payout), it will be a rerating catalyst for the stock as most small-mid cap developers offer dividend yields of 2.2%-6.5%.

· Above average margins from low land cost and in-house construction unit. MCT is able to command better gross margins of 44.3% vs. developers under our coverage of 25%-40%. Land to GDV cost of 8.3% (on 75% of remaining GDV) is deemed cheap as most landbank acquisition costs make up 10% of GDV. Furthermore, the Group has a well experienced construction arm that operates on an efficient cost model, delivering precast and ready-mixed concrete plant, with direct sourcing from its in-house trading company and design team to enhance cost savings.

· Preparing to grow investment properties for sustainability. MCT’s investment properties segment is expected to grow rapidly over the next 5 years to RM3.6b from RM300.0m currently. Most of the investment properties are retail and offices. As such, the Group plans on retaining some RM3.3b GDV, which is equivalent to 28% of our estimated total GDV. They are aiming to target at least 30% of future revenue to come from recurring income, which we reckon will take more than five years to achieve. Nonetheless, we laud the company for its longterm vision as it will provide better income stability during down-cycles. · The Proforma account for the Corporate Exercise indicated 1HFYE15 gross profit of RM104m. Annualized, this would imply gross profit of RM209m for FYE15. Assuming an operating cost component and income tax (no financing cost as we expect them to be lowly geared), we project a net profit of RM102m, which would imply FY15E PER of 17.1x. Since the group is aiming to ramp up the affordable segment, it would stand to reason that earnings growth should still be compelling in FY16. Assuming an optimistic 20% YoY growth in FY16E earnings (affordable small-mid cap average earnings growth is 7.2%), this would imply RM122m or a Fwd PER of 14.3x. Currently, mid cap developers (<RM3b mkt cap) are trading at FY15-16E PERs of 8.4x-7.9x and FY15E yield of 6.2%. 

Source: Kenanga