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Friday, September 12, 2014

MKH on Alliance DBS Research’s high conviction pick


KUALA LUMPUR: Alliance DBS Research said property-plantation based MKH has been grossly oversold after its share price fell 15% from its peak, partly driven by weaker-than-expected 3QFY14 results.
“In our view, the stock is grossly oversold as its solid fundamentals remain intact. We maintain MKH as our high-conviction pick with RM5.70 target price based on sum-of-parts,” it said.
Alliance DBS Research said MKH is one of the few stocks under our coverage with visible growth prospects. MKH is a proven developer with an uninterrupted 25-year profit track record – a feat unrivalled by most of its peers.
“While overall sentiment in the property market remains weak, we believe MKH will be the least vulnerable to the slowdown given its focus on affordable housing which targets genuine buyers.
“This is evident from its record-breaking property sales, bucking the trend of lower sales among its peers,” it said.
Alliance DBS Research said MKH’s unbilled sales of RM690mil is at an all-time high, and demand remains unabated in KL South largely due to the attractively priced affordable homes.
“Potential incentives for first-time home buyers in the upcoming Budget 2015 could further boost its property sales going forward.
The research house said plantation is another key growth driver for MKH. 9MFY14 FFB volume grew 36% on-year, resulting in an impressive 190% growth in 9MFY14 plantation pretax profit.
“We acknowledge the weak crude palm oil prices at this juncture, but its exponential three-year FFB volume CAGR of 20% will more than offset the bearish prices.  
“We are not overly concerned with the unrealised forex gains/losses which is merely an accounting entry given the marked-to-market requirement on its US$85mil borrowings for the plantation division.
“This is not unusual to the Indonesian palm oil industry as even world-class plantation giants have US dollar loans,” it pointed out.

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