Matrix Concepts -
Strong earnings and land acquisition
2Q net profit came in at RM30m, bringing 1H earnings to RM76m, or 64% and 60% of HLIB and consensus estimates respectively.
Due to stronger than expected margins in progress billings.
5.25 sen net DPS was declared in 2Q13, bringing YTD DPS to 15.4 sen, or 59% of our 26 sen DPS forecast.
Qoq margin contraction. Gross profit margin experience sequential qoq contraction due to a change in product mix, declining from 48% to 36%. 2Q saw lower sales in industrial land and lower recognition of double storey residential units, which both typically command substantially better margins.
Raising our forecasts. However, even with the qoq margin contraction, 1H earnings were significantly ahead of HLIB and street estimates, we believe due to overly conservative margin assumptions. To remedy this, we have bumped up our gross profit margin assumption from 25% to 30%.
Land acquisition announced, for a 1-acre parcel of land located along Jalan Ipoh Kecil. We like the location as it is in close proximity to Putra World Trace Center, public transportation and a number of retail and commercial areas.
Making its presence known. MCH is proposing a high rise mixed development on the said land parcel, to commence in FY14. We are positive on this development as it gives MCH a foothold in the Klang Valley market, which offers a potential avenue of growth for future earnings as well as to raise its profile in the largest market in Malaysia.
Focus remains on Seremban and Johor. Nonetheless, MCH still remains very much focused on these two areas, with Seremban accounting for more than 90% of future GDV.
Slowdown in sales; escalation in construction and raw material costs; downturn in Seremban and Johor.
Following our increase in margin assumption, we raise FY13-15 net profit forecast by 9-27%.
Positives: Offers great exposure to the thriving satellite town of Seremban.
Negatives: Lack of landbank diversification means the company’s fate is completely tied to that of Seremban.
Following our raised earnings forecast, our TP is raised from RM2.77 to RM2.84 (maintain 25% discount to RNAV).
Source: Hong Leong Investment Bank Research - 27 Aug 2013
Publish date: 27/08/13