MK Land’s 3QFY16 net profit came in at RM4.8m (-69.4% YoY, +4.3 QoQ) which was within our expectations as we expect 4Q to be stronger. Earnings continued to be lackluster due to the lack of new launches and absence of land sale. Going forward, earnings will be largely dependent on its new launch i.e.Suasana @ Damansara Damai which has an estimated GDV of RM400m. The launch was a bit later than expected due to certain teething issues and also current difficult trading environment. Near-term earnings are still driven mainly by its flagship development, Damansara Perdana and its project in Meru, Perak. No change to our earnings estimates. Maintain Outperform with TP of RM0.50, pegged c.70% discount to our RNAV estimate.

• Unbilled sales at low levels. The Group’s unbilled sales are estimated at c.RM150m and will continue to be depleted with no new launches as yet this financial year. As mentioned earlier, new sales might be helped by en-bloc sales for its new project to minimize selling risks. As for unsold stocks, we understand that it still has c.RM100m worth of unsold units from Armanee Terrace and c.RM600m from the remaining phases of the semi-detached ‘The Rafflesia”. Sales are still very slow especially for ‘The Rafflesia’ but we understand that the Group is considering changing the mix into more marketable products such as super-link houses.
• Land sale. After recent the land sale that was completed in FY15, land disposal also slowed down for the Group. To recap, MK Land has plans to sell its Setiawangsa land valued at c.RM96m or RM40psf. MK Land believes that the market value is higher now at RM70psf or RM168m for the 55-acres plot (or as high as RM83psf or RM200m in recent reports). Elsewhere, it has also another 5-acre piece in Damansara Perdana that could be offloaded for c.RM500psf. In our RNAV estimates, we estimate the land in Setiawangsa at RM40psf and residential land in Damansara Perdana at RM200psf.
• Maintain Outperform and TP of RM0.50, pegged c.70% discount to our RNAV estimate. The current weak market environment could see the Group’s earnings drop further if there are no new projects or land sale. In addition, we believe that the Group’s asking price on the land for sale is on the high side, and hence might take longer than expected. As such, with no key earnings drivers, we believe its earnings will be under pressure in the near term.

Source: PublicInvest Research - 24 May 2016