MK Land - Susceptible to market GE risk

INVESTMENT MERIT

- Results highlights. MK Land’s 1Q13 net profit of RM4.1m was below expectations and merely accounted for about 11.7% of our full-year estimate of RM35m. 1Q13 revenue increased by 11% YoY to RM91.9m, but bottomline growth was muted at 5% YoY to RM4.1m, no thanks to its higher cost of sales. 1Q13 net profit fell 42% QoQ due to lower sales billings. 

- High beta developers unlikely to perform nearer to GE. MK Land’s share price has not performed well since  our last report dated 7 Aug 2012. Our property analyst has turned cautious for the short term due to increased cautious sentiments on nearing GE, which will cap upsides for small cap developers like MK Land. Furthermore, our property analyst prefers defensive dividend yield driven developers of >5% yields; MKLAND’s FY13E yield only implies 2.3% (MK Land has announced a 0.75 sen net dividend payout on 15 Jan  2013) which could be largely driven by its one-off Damansara Perdana land sale, so the payout may not be consistent (they have not paid out dividends over the last 3 years).  

- Reduce FY13E projected net profit by 54% to RM16m on lower property sales as we expect buyers to be more cautious running up to GE. 

- Trimming our TP to RM0.36 (RM0.85 previously) as we widen our discount rate to 81% (55% previously) on unchanged FD RNAV of RM1.88 to reflect close to trough Fwd PBV valuations. The higher discount rate factors in the disappointing results, risks of high betas negatively reaction to risks of nearing GE, small market capitalisation, and disappointing earnings against our estimates. Hence we reduce rating to “TRADING SELL”. Risk to our call is if MKLAND manages to sell more of its landbanks which may result in more one-off profit jumps or even special dividends.

SWOT ANALYSIS

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

- Weaknesses: Small market cap/weak dividend payout record. 

- Opportunities:  MRT accessibility to future Damansara Perdana developments.  Future land JVs for its asset-light devt. models. 

- Threats: Economic risks, upcoming GE risks.

TECHNICALS

- Resistance: RM0.35 (R1), RM0.38 (R2)

- Support: RM0.315 (S1), RM0.29 (S2)

- Comments: MK Land has formed  "Falling Wedge" chart pattern over the past half a year. Though not necessarily a bearish pattern, traders should not take any action until the share price breakouts out of either the RM0.35 resistance (Buy signal), or the RM0.315 support (Sell signal) which would offer some direction.

BUSINESS OVERVIEW

- MK Land is a property development company with focus in Selangor, Perak and Kedah. Its land portfolio includes affordable housing, lifestyle living, commercial development, resort, water theme park and other investments.

BUSINESS SEGMENTS

- Property – Rafflesia Semi-Detached bungalows Phase 2, Phase3 and One Damansara  Condominiums have been completed and handed over to the purchasers. New launches include 50 units of Rafflesia Semi-Detached bungalows Phase 6 and Metropolitan Square Block C, comprising 258 units of condominiums.

- Leisure – >90% of leisure revenue comes from its Bukit Merah Laketown Resort while the balance are contributed by Taiping Golf Resort and Taiping Golf and Country Club. During the financial year, its Langkawi Lagoon Resort hotel was launched with 69 budget rooms while another 79 new premium rooms are being constructed right now.

Source: Kenanga