CGS-CIMB keeps 'hold' call on MKH with raised TP of RM1.43

• The group holds unbilled sales totalling RM841 million, equating to around 0.8 times cover ratio, and possesses a remaining landbank of 627.5 acres primarily located in Kajang (93%), estimated to have a gross development value (GDV) of RM8.9 billion as of September 2023

KUALA LUMPUR (Dec 4): CGS-CIMB has kept its "hold" call with a raised the sum-of-parts-based (SOP) target price of RM1.43 on MKH Bhd, after the group's fourth quarter ended Sept 30, 2023(4QFY23) missed expectations.

Additionally, on anticipation of higher production costs for its plantation segment, the research firm’s reduced its FY2024 and FY2025 earnings per share (EPS) by 11.8% and 9.6% respectively.

"Our SOP-based TP rises to RM1.44 as we roll over valuations to FY24. Hold as positives from the property segment are mitigated by the plantation business." it said.

CGS-CIMB said downside risks include delays in planned launches and further deterioration in crude palm oil (CPO) prices.

Meanwhile, potential catalysts include a significant recovery in CPO prices, which should boost revenue and earnings contributions from its plantation segment, and stronger-than-expected property sales,said the house in a note on Monday.

CGS-CIMB noted that for the 4QFY3, MKH stated a core net profit of RM17.5 million which marked a significant increase of 71% year-on-year (y-o-y) and 16% year-on-year (y-o-y) driven by a 21% yoy increase in revenue.

However, the company's full-year core net profit for FY2023 hit RM70.4 million, marking a significant decline from the previous fiscal year, attributed to a higher effective tax rate of 31% which up from 25% in FY2022 and a reduce on earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin of 16% (versus 23% in FY2022).

Lately, new property sales in FY2023 increased to RM513 million, lifted by TR2 Residence, Akina @ Kajang 2 and Mirai Residences.

Additionally, the plantation segment recorded a decreased profit before tax (PBT) of RM37.5 million due to reduced palm kernel sales, lower average selling price (ASP) of RM1,589/MT and higher production costs, although this impact was partially offset by a rise in CPO sales volume to 92,607 tonnes.

“We cut our FY24/25F EPS by 11.8%/9.6% after: i) updating for FY23 earnings, and ii) factoring in higher production costs for its plantation segment.” said CGS-CIMB.

Looking ahead to FY2024, with a focus on affordable residential projects for genuine homebuyers, management plans to launch developments worth approximately RM640 million, including Mahkota Cheras Residences (a serviced apartment), Annya @ Kajang 2, and Mirai Residences 2.

The group holds unbilled sales totalling RM841 million, equating to around 0.8 times cover ratio, and possesses a remaining landbank of 627.5 acres primarily located in Kajang (93%), estimated to have a gross development value (GDV) of RM8.9 billion as of September 2023

At the time of writing, MKH was a sen or 0.71% higher at RM1.42, translating into a market capitalisation of RM838.76 million.

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