• Maintain NEUTRAL but with lower TP of MYR0.39 from MYR0.67, 5% upside. Earnings were below expectation due to slower construction progress as well as lower-margin products – PR1MA Homes. Public spread remains a concern, as currently it still falls short of the listing requirement of 25%. MCT’s share price has slumped more than 40% YTD, which we believe is in relation to a drastic change in management.

• Earnings below expectation. MCT’s 1Q19 core net profit of MYR5.7m was below our expectations, making up only 8% of our full year estimate. Revenue dropped 18.9% YoY and 43.8% QoQ, mainly due to slowdown in construction progress and newly launched projects still being at the early stage. Meanwhile, core net profit slumped 78% YoY and 84% QoQ, arising from lower-margin products such as PR1MA homes. Please note the company has recently changed in financial year end to Jun 2019 (from Dec 2018).

• Unbilled sales fell. As at Mar 2019, MCT’s total unbilled sales fell to around MYR678m (from MYR960m in Dec 2018) due to the lack of new launches as well as completion of four major projects in 4Q18. The current unbilled sales should provide the group with earnings visibility over the next 2-3 financial years. MCT’s new sales in 1Q19 dropped to MYR104m (vs MYR164m in the previous quarter).

• Future launches. The group is expecting several key launches at Lakefront in its Cybersouth township (in Cyberjaya). The focus will remain on residential properties that are priced at MYR250,000-700,000, with some commercial units to complement the projects. The group also targets to launch the first phase of its project on newly acquired land in Subang Jaya by 4Q19.

• Public spread needs to be addressed before August. The group has announced that it was given a further extension of time, until 4 Aug 2019, to comply with the public shareholding spread requirement. Currently, the public shareholding spread stands at 18.74%, which is below the 25% set by the listing requirements.

• To address the non-compliance, the group is exploring various options including: discussing with the company’s major shareholders on the possibility of selling down their shareholding to public shareholders; engaging with investment banks on private placement exercises to those deemed public; and intensifying communication with potential investors, analysts, research houses and shareholders to instil investor confidence.

• Cut TP but still NEUTRAL. With the lower-than-expected earnings, we cut our FY19F-21F earnings by 42-48%. We also trim our TP to MYR0.39 based on 70% discount to RNAV (from 60%) over the public shareholding spread concern and changes in management.

Source: RHB Securities Research - 29 May 2019