Maintain NEUTRAL and MYR0.83 TP, offering 10% upside, as we remain cautious on the property market. FY18 core earnings beat expectations, mainly on construction savings from Skypark and Lakefront Villa. Management is now focused on increasing the stock’s public shareholding, which is below the required public spread. According to management, a potential selldown of its shareholding or a private placement exercise is possible. For sector exposure, we prefer Eastern & Oriental (EAST MK, BUY, TP: MYR2.05).

FY18 (Jun) core net profit of MYR66.4m was above our estimate. MCT’s revenue contracted 27.7% YoY, mainly due to slower construction progress and sales recognition. However, FY18 net profit and core net profit grew 23% and 6.5% YoY on construction savings from Skypark and Lakefront Villa.

Exceptional items. For FY18, core net profit excluded the MYR17.9m gain from the disposal of One City Properties (OCP) that was completed on 31 Jan. The disposal gain exceeded our earlier expectation of MYR4m, as the net assets of OCP as of 31 Jan were revised to -MYR10.4m. The group also received a gain of MYR21.5m from the disposal of its Ecity Hotel for a cash consideration of MYR1, as the asset has a net liability of MYR21.5m. The gain was however offset by the provision for liquidated and ascertained damages arising from Skypark @ Cyberjaya.

Lower construction progress. Skypark @ Cyberjaya, Lakefront Villa @ Cyberjaya, Cybersouth Green Casa and Casa View (Phases 1B and 2B) were at the tail-end of completion. As such, completion rate was slower during the quarter vs the same period in the previous financial year. The Cybersouth project is expected to be handed over in 4QFY18 and 1QFY19, while Lakefront will be handed over by the end of the year.

Unbilled sales fell. As at June, MCT’s total unbilled sales fell to around MYR1.4bn (MYR1.5bn in previous quarter) due to the lack of new launches. However, this should provide earnings visibility over the next 2-3 financial years for the group. We remain cautious on the property market’s outlook, as MCT’s new sales in 4QFY18 were slower at MYR70m (vs MYR117m in 3QFY18).

Maintain NEUTRAL. Given the stronger-than-expected results, we raise our FY19F-20F earnings by 3-5%. However, we maintain our TP of MYR0.83 (10% upside) based on an unchanged discount to RNAV of 50%. We are NEUTRAL on MCT, as the domestic property market is expected to continue to be challenging in FY19. Management is now focused on raising its public shareholding (currently at 23.3%), which is below the required public spread. It is exploring the possibility of selling down its shareholding to public shareholders, or holding a private placement exercise.

Source: RHB Securities Research - 7 Aug 2018