• Maintain BUY and MYR1.75 TP, 17% upside and c.7% FY24 (Mar) yield. 3QFY23 results met expectations. With foreign labour coming in at a slower- than-expected pace, construction progress has not picked up as planned. Management guided that the balance workers should come in by end 1QFY24. We believe the share price will rangebound over the near term until the labour issue is fully resolved, but the stock remains our sector Top Pick given its solid balance sheet, consistent sales and high dividend yield.

• 3QFY23 results. Sequential revenue was higher given the completion of Matrix Concepts’ first high-rise project in KL, The Chambers, as well as M Greenvale in Australia. However, progress billings for local projects remained slow, as first batch of foreign workers have just arrived in early CY23, and need to undergo relevant training. EBIT margin during the quarter was weaker at 21% vs 30% in the previous quarter, largely due to the lower profitability of The Chambers and M Greenvale. The higher administrative expenses (+4% YoY) was due to a bonus payment to staff in Dec 2022. A third interim single tier dividend of 2 sen was declared. This is same as the previous quarter’s DPS.

• Keeping sales momentum in 3QFY23. Property sales remained healthy and should hit its MYR1.3bn full-year sales target. New property sales reached MYR340.3m (excluding property sales in Australia) vs MYR352.7m in 2QFY23. Many of the newly launched projects were well received, including the shop lots at Irama Sendayan Biz which was 87% sold, while Hijayu Residence Phase 2 Parcel 2 and Bayu Sutera 5 were 29% and 22% taken up. Meanwhile, M333 St Kilda in Melbourne, which was launched in May 2022, is now >30% sold.

• Labour shortage issue to be resolved in three months. Foreign workers came in slower than expected. We understand that only about half of them have arrived in Jan 2023 as planned, and management is hopeful that the remaining workers will reach by May 2023. This may mean that progress billings of the local projects can only pick up in 2QFY24. To avoid incurring liquidated ascertained damages (LAD), MCH is now launching smaller phases, and has already applied for extension of time for some of the projects.

• Forecasts. We maintain our earnings forecasts. Unbilled sales rose to MYR1.51bn vs MYR1.42bn as at 2QFY23.

• Maintain TP. Our TP is based on 35% discount to RNAV, as well as 4% ESG premium given our ESG score of 3.20 for MCH using our in-house proprietary methodology.

Source: RHB Research - 1 Mar 2023