• Maintain NEUTRAL with a new MYR0.26 TP from MYR0.39. Earnings were below expectations, due to higher marketing and maintenance expenses for SkyPark – this was despite a growth in MCT’s topline after the pick-up in construction lag in 1Q19. Public spread is still a cause for concern, as the current level of 24% is still short of the listing requirements. Its share price has slumped >60% YTD from MYR0.75 at the start of the year.

• Earnings came in below expectations. MCT’s 1H19 core net profit of MYR8.5m missed, having made up only 21% of our full-year estimates. Revenue for 2Q19 increased 67% YoY (+4.7% QoQ), as the construction lag from the previous quarter has picked up from the festive season, with three projects slated for handing over by 1Q20. 2Q19 core net profit slumped 56% YoY and 52% QoQ on higher interest, as well as marketing and maintenance expenses for SkyPark’s investment properties.

• Launches slated in the pipeline. Several projects at Lakefront in the Cybersouth township – located in Cyberjaya – are expected to be launched by 4Q19, whereby the focus will be on residential properties priced between MYR250,000 and MYR700,000, with some commercial units to complement said projects. The first phase of the group’s project on newly-acquired land in Subang Jaya is also slated for launch by year’s end.

• Marginal increase in unbilled sales. The latest unbilled sales amount as at 2Q19 stood at MYR692m, a marginal increase from last quarter’s MYR678m. This is an improvement from the large drop shown last quarter from MYR960m – as at Dec 2018 – to MYR678m. This was caused by the lack of new launches and completion of four major projects in 1Q19.

• Public spread still below requirements as at August. MCT announced on 9 Aug that its public shareholding spread stood at 24.59% from 18.74% as at March – this was still non-compliant with the public shareholding spread requirement of at least 25%. To address this, the group plans to discuss with its major shareholders on the possibility of selling down their shareholdings. It also intends to engage with investment banks on private placement exercises to those deemed public. The group also wants to increase communication with potential investors, analysts, research houses, and shareholders to instil investor confidence.

• TP and earnings slashed, call remains. With the lower-than-expected earnings, we slash our FY19F-21F earnings 11-48%. Our new TP is based on a larger discount to RNAV of 75% from 70% to reflect our concerns over the public shareholdings spread and changes in management.

Source: RHB Securities Research - 3 Sept 2019