MBWORLD (7189) - MB World - A Proxy for RAPID’s Growth



Highlights

    Proxy for growth in Pengerang. Its maiden township project, Taman Sri Penawar at Desaru is benefiting from the growth potential and spill-over effects from nearby developments such as the luxury destination resort Desaru Coast, Pengerang Integrated Petroleum Complex (“PIPC”) and Petronas’ Refinery and Petrochemical Integrated Development (“RAPID”) in Pengerang.

    First mover advantage. Bucking the lacklustre trend of overall property market, MB World was able to achieve an overall take-up of >80% within a year after the launch of its projects. This is made possible due to the first mover advantage that MB World enjoys, benefiting from the growing spill-over demand from Pengerang coupled with the scarcity of housing supply on the back of growing demand.

    Supported by high yield and pollution free. Besides the key selling point of close proximity to Pengerang and RAPID projects, the location also provides the residences a safe distance from the risk of severe environmental impact and pollution in Pengerang. Besides, the project is expected to fetch an attractive rental yield in the range of 6-10% drawing the inference from the rental rate in the neighbour township.

    A rising property player in Johor with a total GDV of RM3.5bn to be developed for the next 10 years. The revenue is expected to rise by 3-years CAGR of 39% in anticipation of continue strong new sales in FY18 and FY19, having achieved about RM566m sales (excluding Pinnacle) in FY17. Other than the completed Pinnacle Tower project in JBCC and the 470 acres of development in Taman Sri Penawar (GDV: RM1.9bn), the company was awarded a development right on a 50 acres land in Teluk Jawa with a planned GDV of RM1.5bn.

    Earnings to grow by 3-year-CAGR of 49% from 2016 to 2019 mainly driven by the good take-up of the ongoing projects. The estimated FY18 and FY19 forward P/E are attractive at 7.4x and 6.2x, respectively. Sustainability of earnings is supported by the unbilled sales of RM275m as of 3Q17 (cover ratio of 2.2x) and healthy margin given its low land cost.



Risk

    Delay in planned launches and weaker-than-expected sales.

Forecasts

    We forecast FY17 and FY18 core earnings at RM27m (+70% YoY) and RM44m (+64% YoY), respectively.

Rating
Initiate with BUY, TP: RM2.75 (+32.2% upside)

    First mover advantage to capture the spillover effect from the growth in the RAPID project in Pengerang. Earnings visibility for the next few years is well supported by the unbilled sales and strong take-up or newly launched projects. Potential increase in dividend following the projected high earnings growth.

Valuation

    Our TP of RM2.75 is based on 35% discount on estimated RNAV of RM4.23 per share.

Source: Hong Leong Investment Bank Research - 15 Jan 2018