MUI Properties (Trading Buy, TP:RM0.26, SL: RM0.175)

• MUI Properties (MUIPROP) has emerged as a proxy to rising gold prices. Due to its safe haven status, and against the wobbly global economic backdrop, gold prices are up 20% from a year ago to USD1,575/oz currently.
   
• This comes after MUIPROP on 12 Nov 2019 converted the Secured Convertible Note of Nex Metals Explorations Ltd (Nex Metals) – a listed company in Australia with principal activity in gold exploration – into ordinary shares, resulting in MUIPROP owning a 40.7% stake in Nex Metals.
   
• Interestingly, Nex Metals announced in early Feb this year that it has found “high-grade gold ore” at a site in Western Australia. If the initial discovery subsequently translates into physical gold mining activity, this could raise MUIPROP’s market value.
   
• MUIPROP’s existing business is primarily in property development. The stock is currently trading at a sharp 47.3% discount to its book value (BV) per share of RM0.37 (as of end-Sep last year). This is backed by land bank value of RM193.5m (or 26.1 sen per share) in Negeri Sembilan which accounted for more than half of the Group’s total assets of RM377.7m (as of Jun last year).
   
• Also, MUIPROP has zero borrowings, presently sitting on a cash pile of RM74.5m (as of end-Sep 2019). This translates to 10.1 sen per share or approximately half its current share price.
   
• The Group is profitable, with net profit soaring from RM2.7m in FYJun2018 to RM17.1m in FYJun2019. For 1QFY20, net profit came in at RM3.4m (flat y-o-y). Full-year annualised net profit of RM13.6m would translate to attractive P/E multiple of 5.1x on an ex-cash basis.
   
• Applying a P/BV multiple of 0.70x (which is pegged at its 3-year mean valuation given the Group’s balance sheet strength) on its latest BV per share of RM0.37 would imply a fundamentally-driven price of RM0.26 for each MUIPROP share.
   
• Technically speaking, a trend reversal pattern could be in the works. After plotting lower highs and lower lows with its share price plummeting from RM0.515 in Sep 2014 to a trough of RM0.16 in Sep 2019 (a six-year low), the stock appears to have found a bottom.
   
• On the way up, we have set resistance targets at RM0.23 (R1) and RM0.26 (R2), which represent potential upsides of 17.9% and 33.3%, respectively.
   
• We see relatively limited downside risk with key support levels identified at RM0.175 (R1) and RM0.155 (R2), or 10.3% and 20.5% below its last traded price of RM0.195.
   
• Putting together both our fundamental valuation perspective and technical insights, we have derived our target price at RM0.26 per share (+33.3% potential return).

Source: Kenanga Research - 17 Feb 2020