MKH may float its plantation operation

MKH may float its plantation operation
Business & Markets 2014
Written by HwangDBS Vickers Research
Wednesday, 05 February 2014 10:00

MKH Bhd
(Feb 4, RM3)
Maintain buy with RM5.40 sum-of-parts-derived target price: MKH’s exponential earnings growth (three-year compound annual growth rate [CAGR] of 31%) is driven by its property and plantation operations.

The potential listing of its plantation operation upon full maturity of its oil palm estates will unlock its value.

Our recent meeting with management reinforced our conviction that MKH is on the horizon of a multi-year rerating.

Contrary to market expectation of a slowing property market, MKH’s affordable housing projects continue to gain traction among its buyers, who are typically genuine homebuyers or upgraders.

Its RM890 million launch pipeline for financial year 2014 ending Sept 30 (FY14) is expected to boost its record high unbilled sales of RM503 million (as at September 2013).

Meanwhile, cost pressures should be mitigated by its established track record with internal project management expertise and building materials trading arm.

MKH is not resting on its laurels. Coming from a low base, MKH’s plantation profits will be growing at an astounding 69% CAGR over FY13 to FY16F.

Nevertheless, MKH is seeking more plantation land in Indonesia, potentially emulating the resounding success of its 14,400ha fully-planted oil palm estates (16 tonnes per hectare fresh fruit bunch yield despite a young age profile of four years).

Management is confident that its well managed estates will hit 30 tonnes per hectare yields upon full maturity.

In the longer term, MKH may float its plantation operation to unlock value for shareholders.

MKH’s current valuation implies that its plantation business (with a market value of more than RM1 billion) is accorded zero value, which is unjustified.

MKH is a rare gem that offers both deep value and strong earnings growth. Its current bargain valuation at 5.5 times price-earnings ratio is an attractive entry level given visible, exponential growth potential.


The solid earnings delivery will be a strong rerating catalyst as investors start to see value in the stock — HwangDBS Vickers Research, Feb 4



This article first appeared in The Edge Financial Daily, on February 05, 2014.