Kenanga Research has initiated coverage of MKH Berhad, a group involved in property development and investment, palm oil plantation, building materials and furniture manufacturing.
“We initiate coverage with an OUTPERFORM call and SoP-derived TP of RM2.15. Our SoP components are driven by 50% discount to RNAV on the group’s property segment, which is lower than our sector average of 60%, supported by its higher exposure to affordable products.
“It is also based on 13x FY24F PER to its plantation sector earnings, at a 20% discount from its large cap peers and 12x FY24F PER on its hotel and property investment segment, also at a 20% discount,” it said in its note today (Nov 22).
The research house said MKH is a prominent property player in Kajang, focusing mainly on affordable houses with strong emphasis on transit-oriented development (TOD) which it believe is highly popular.
“Meanwhile, its plantation segment appears to be a top performer amongst large cap palm oil planters, and it is likely to see a portfolio expansion in the near term. The group also operates in a low gearing environment which could be key in the group’s long-term growth objectives,” it said.
Kenanga reckons its property offerings could stay in demand as its MKH’s property development segment is mostly located within the Kajang-Semenyih region.
“We had gathered that approximately 50% of its product offerings are priced below RM500,000, a level seen as widely affordable.
“Helping the bankability of its pipeline, the group also possesses strategic land banks which are of close proximity (400 metres radius) to a KTM or LRT line, enabling its TOD emphasis,” its said.
Aside from that, it said that MKH has modest land bank to sustain the long-term with remaining landbank of 627.5 acres, which translates to a total gross development value (GDV) of RM9.51 billion.
“This would be fueled by the group’s pipeline for integrated developments which will include high-rises, terraces and semi-D homes as well as attached commercial retail lots.
“Historically, MKH sets an annual launch target of RM800 million GDV but may move towards a target closer to RM1 billion in sales per year. This roughly translates to a product pipeline of nine years,” it said.
Kenanga highlighted that MKH’s top-class Kalimantan-based palm oil plantation operations is highly efficient, with a segment ROE of 14% which is above large cap planter’s 3-year average of 13% and sector average of 10%.
“We attribute its significantly stronger performance to its fully mature estate, which is thought to be sitting on higher quality soil, hence bolstering yields. Future acquisitions of its palm oil estate land bank (+c.30%) could further drive its contributions.”
It added: “We like MKH as they offer several unique propositions in the property development space, and potential in its plantation footprint. Additionally, the group’s low gearing (FY22 at 0.01x) provides the group with strong flexibility.”
The risk to Kenanga’s call include overhang in the high-rise, affordable home segment, unfavourable CPO price fluctuations, higher-than-expected input and production costs, and regulatory changes.
