MKH’s property sales driven by robust demand for affordable homes

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KUCHING: MKH Bhd (MKH) have recorded strong and sustainable property sales driven by robust demand for affordable homes.

According to analyst Quah He Wei from HwangDBS Vickers Research Sdn Bhd (HwangDBS Vickers Research), affordable homes will remain MKH’s bread-and-butter.

“Demand for properties in this segment remains overwhelming despite generally weaker sentiment in the property market,” Quah opined.

The analyst noted that MKH’s property sales have accelerated this year to RM280 million (by end-February), suggesting they will meet their FY14 target of RM800 million, supported by RM912 million worth of planned launches.

“Their distinct advantage – low land cost in Kajang/Semenyih of circa RM9 per square foot (psf) versus an estimated RM25 psf entry cost for peers – will allow for more flexibility in product mix and pricing as urban migration and MRT connectivity continue to drive demand for affordable housing in the area,” Quah highlighted.

In regards to MKH’s plantation segment, the analyst noted that bullish crude palm oil (CPO) prices – RM2,900 per metric tonne (MT) currently – suggest upside potential to our conservative projection of RM2,570 per MT for FY14.

“Every five per cent increment over our assumption would lift our FY14F earnings by four per cent. As it is, we forecast plantation earnings will grow at an astounding 69 per cent compound annual growth rate (CAGR) over FY13-16F, largely premised on 20 per cent CAGR in fresh fruit bunches (FFB production), the highest in our Malaysian plantation universe,” Quah projected.

Meanwhile, the analyst pointed out that management is seeking more plantation land to grow the segment and eventually unlock value via a public listing when the estates reach full maturity by 2017.

Overall, Quah find that MKH is a rare gem that offers both deep value and strong earnings growth.

“Although the share price has surged 58 per cent since our initiation report on January 2, 2014, current valuation at eight-fold FY15 earnings per share (EPS) remains an attractive entry level given its visible and exponential growth potential,” the analyst noted, adding that solid earnings delivery in subsequent quarters will be a strong rerating catalyst.

As such, HwangDBS Vickers Research reiterated its high-conviction ‘buy’ rating on the stock with a target price of RM5.40 per share.