• MYR0.40 FV based on a 60% discount to RNAV. After undergoing a major operational restructuring, Avaland’s earnings and profit margin have improved substantially since two quarters ago. The company is now led by a group of experienced management team and board members who understand the Malaysia property market well. The right products and strategies should drive strong earnings momentum ahead.

• A successful turnaround after major internal revamp. Avaland (previously known as MCT) has been under many investors’ radar largely due to its poor earnings over the last few years coupled with the slowdown in the property market. However, given the change in the management team, the company has started seeing convincing earnings turnaround since two quarters ago. Teh Heng Chong was appointed as CEO in Mar 2019, and the company changed its name to Avaland in Jul 2023. Teh has been the instrumental person in driving the restructuring. Despite resigning from his post (effective 1 Jan 2024, – Apollo Bello Tanco, the current COO, will take over), Teh will remain as a Non-Executive Director on the board.

• What has changed? Management has decided to focus on building brand equity by offering quality property products for long-term growth sustainability. Over the last few years, one of the major changes included a complete outsource of design and architectural as well as construction works for all its projects. In the past, the amount of defects as well as the costs incurred for rectification works and overheads were high due to the in-house construction arm undertaking all the building works. Meanwhile, the company’s net gearing fell to 0.15x as at 9M23 from 0.23x last year.

• New projects saw encouraging take-up. With designs more refreshing for many of the new projects, Aetas Damansara, Alira Subang Jaya, Sanderling in Cyberjaya and Casa Embun in Cybersouth managed to achieve take-up rates of 97%, 83%, 74% and 71%. These projects were launched over the last 1-2 years. We believe management read the market correctly, given market preference for larger residential units postpandemic. Aetas, which is a mid-high end project, rightly suits the current market demand.

• Potential landbanking for future growth. Going into 2024, management plans to acquire more landbank for niche developments. In the pipeline, it will launch Amika Residences (next to Alira), Anja in Bangi and Aetas in Seputeh. These three projects have a combined GDV of MYR1.33bn.

• Strong earnings momentum ahead. We expect Avaland to reach about MYR500m and MYR700m in property sales in FY23F-24F. Unbilled sales hit a high of MYR867m as at 9M23 vs MYR720m in FY22. Our FY24F-25F earnings suggest an earnings growth of 41% and 27%.

Source: RHB Securities Research - 27 Dec 2023