MK Land - Unlocking deep value

INVESTMENT MERIT

- Fair value of RM0.85/sh based on 55% (steepest) discount to projected RNAV of RM1.88/sh after revaluing Damansara Perdana and Setiawangsa land. 

- Deep value: The stock is trading at 0.5x PBV/the 6-year mean. Fair value of RM0.85/sh implies 1.0x PBV, which is still below the peak level of 1.4x, and is reasonable considering their ambitions to realise land values. 

- Consensus: FY12E net profit of RM21.9m (+16% YoY), excluding the land sale gains.

COMPANY UPDATES

- Announcement: In January 2011, MK Land proposed the sale of a 26.86ac land in Damansara Perdana for RM130m or RM111psf (assuming gross land price). The projected net gain is RM91m and the group will move from the current 0.1x net gearing to a net cash position. The proceeds will be used for working capital/CAPEX, meaning more dividend potentials from its development earnings. Since its turnaround plans in 2008, the group has not paid out any dividends. 

- However, the land sale has not been completed yet and land prices are higher now. There are no available land comparatives in Damansara Perdana. Since the land size is huge (586ac gross land), we assume a 20% discount to the gross land price of RM111psf for the RNAV projection.

SWOT ANALYSIS

- Strength:  Largest land owner in Damansara Perdana with extremely low land cost. 

- Weaknesses:  Small market capitalisation. No dividend payout for the past 3 years. 

- Opportunities:  MRT accessibility to future Damansara Perdana developments. Future land JVs for asset-light development models. Recent JV venture is in Cyberjaya with Paramoden and Susuran Timur.

- Threats: Policy and economic risks.

TECHNICALS

- Resistance: RM0.44 (R1), RM0.475 (R2)

- Support: RM0.37 (S1), RM0.35 (S2)

- Views: Bullish in the ST & MT, LT remains bearish.

- Comments: Double Bottom formation completed, indicating a ST-MT trend reversal. A breakout above the early-2011 high of RM0.475 will buck the LT down trend, with a renewed measurement objective of RM0.62.

BUSINESS OVERVIEW

- MK Land, a property development company mainly focusing in the Selangor, Perak and Kedah areas. MK Land’s portfolio includes affordable housing, lifestyle living, commercial development, resort, water theme park and other investments.

- MK Land is now under the leadership of YBhg. Tan Sri Datuk Haji Mustapha Kamal (Chairman) and Mr. Lau Shu Chuan (CEO). 

BUSINESS SEGMENTS

- Property – Rafflesia Semi-Detached bungalows located in Petaling Jaya has been sold out. The One Damansara Condominiums have a take-up rate of more than 90.0%.

- Construction – New phases of Rafflesia Semi-Detached bungalow, Block B & C of Metropoliton Square  and Block B of One Damansara are expected to be launched in 12 months time.

Source: Kenanga