MRT and plantation segments to drive MKH’s earnings

MKH Bhd (Oct 7, RM2.36)

Maintain buy with an unchanged target price of RM2.80: MKH’s strong foothold in Kajang and Semenyih makes it the largest beneficiary of the improved public transport connectivity via two mass rapid transit (MRT) stations within Kajang. This has also boosted its property sales.

MKH has the advantage of low land cost within the growing Kajang/Semenyih corridor, which will give it greater pricing flexibility.

Unbilled sales stand at a record high of RM855 million, which is 1.2 times of its financial year 2016 (FY16) property revenue.

The group will continue to register strong plantation earnings growth as the favourable age profile of its palm trees would partly offset the impact of weak crude palm oil prices.

We estimate fresh fruit bunch volume will grow by 12% compound annual growth rate over FY14 to FY17; it grew 33% in FY14.

The plantation business is already self-sustaining at this juncture, and the group has started paring down its US$85 million (RM357 million) borrowings since March as per the repayment schedule.

At a weighted average age of only six years, the young palm profile will underpin the strong recurring earnings base going forward.

MKH’s share price took a beating recently because of unfavourable sentiment towards its core business segments — property and plantation. However, the group’s fundamentals remain strong and future prospects remain robust.

The completion of the MRT project by 2017 will drive sales and the value of its property projects in Kajang and Semenyih, while its young oil palms will continue to offer strong earnings growth. — AllianceDBS Research, Oct 7

Check out properties in Kajang here.

This article first appeared in The Edge Financial Daily, on Oct 8, 2015.