MKH Bhd
(Jan 26, RM2.71)
Maintain buy with a target price (TP) of RM4.10: Despite the weak sentiment regarding the property sector, MKH Bhd continues to achieve strong property sales, thanks to its core focus on affordable housing. Its financial year, ended Sept 30, 2014 (FY14)’s unbilled sales were at a record high of RM823 million (+64% year-on-year [y-o-y] due to its impressive RM820 million sales (+41% y-o-y) which exceeded its own RM800 million sales target. This will underpin strong earnings visibility over the next two years. MKH aims to secure RM850 million sales in FY15 on the back of RM1.3 billion launches.

We understand some of its projects (Hillpark Homes 3 [Kajang] Saville@D’Lake [Puchong]) have received strong responses, judging by the initial registration.

Strong plantation earnings growth remains intact as the favourable age profile of palms offsets the subdued crude palm oil (CPO) price. We estimate a three-year fresh fruit bunch volume compound annual growth rate (CAGR) of 12% over FY14 to FY17 forecast (achieved 33% growth in FY14). Its plantation business is already self-sustaining at this juncture, and the group will start paring down its US$85 million (RM307 million) borrowings (US$15million [RM54.15 million]/year) in September 2015 as per the repayment schedule. At a weighted average age of only 5.8 years, the young oil palms are set to underpin its strong recurring earnings base going forward.

We revised down our sum-of-parts-derived TP to RM4.10, after rolling over plantation valuation base to FY15 and widening property discount to 50% (from 35%). We believe the recent selldown has already priced in weak sentiment in the property market.

We reiterate our buy rating as we continue to like its strong earnings prospects with a projected three-year CAGR of 25%. — Alliance DBS Research, Jan 26

This article first appeared in The Edge Financial Daily, on January 27, 2015.