By Khairie Hisyam
Fresh off a reverse takeover, MCT Bhd is a property developer boasting above-average margins and relatively cheaper land cost than most. But is it a good pick in a property market still beset with strong headwinds?
Business model: MCT Bhd is a different soul in an old body. Until recently, the listed entity was known as GW Plastics Bhd, which fell into PN17 listing status after selling its plastics business to Scientex Bhd for RM283.2 million on Jan 8, 2013.
Privately held property developer MCT Consortium Bhd then came in as a white knight to take over the company’s listing status in a reverse takeover worth RM1.15 billion. The entity was renamed MCT Bhd and returned to active trading on April 6, 2015 and uplifted from PN17 status.
Prior to the reverse takeover, MCT Consortium had been a property developer for more than a decade. Starting off as a construction business in 1999, the firm ventured into property development in 2004 and has completed some RM1.08 billion worth of projects with another RM2.26 billion worth of projects ongoing at present, according to its website. The company is mostly in the affordable housing segment.
Apart from property development, MCT also undertakes construction work and a collection of activities that include property leasing, operating a fitness centre and a car park operation.
Shareholders and management: As of April 16, 2015, the biggest shareholder in MCT is deputy executive chairman Barry Goh Ming Choon with 42.8%, followed by the only other executive board member Tong Seech Wi with 22.98%. Both men were former classmates who founded Modular Construction Technology Sdn Bhd in 1999 alongside Goh’s brother Danny Goh.
Other substantial shareholders are pilgrimage fund Lembaga Tabung Haji with 10.05% stake, while Phillippines-based property developer Ayala Land has a 9.17% stake via Regent Wise Investments Ltd.
In terms of management, MCT’s chief executive officer is executive director Tong, appointed on April 6, 2015. A civil engineering graduate, Tong has been in the construction and property development business for over 24 years, according to the company.
Share performance: At the closing bell of April 16, 2015, MCT shares were last traded at RM1.32 per share. With an outstanding shares base of 135.2 million shares, it places MCT’s market capitalisation at RM1.76 billion.
The counter had not moved much since April 6, when it returned to active trading at an opening price of RM1.43 per share, according to Yahoo! Finance data, though closing at RM1.33 per share that day. Prior to that, the counter was suspended from trading with effect from Jan 23, 2014 pending the completion of its regularisation plan.
What analysts think: There is limited coverage on the counter as the reverse takeover had only concluded recently.
While not rating the counter, Kenanga Research reviewed MCT in a report dated April 9, 2015 and noted the developer will be in a healthy balance sheet position once the dust settles on its transformation into the new entity. That involves a private placement and bumiputera issue that is expected to raise gross proceeds of RM377 million, putting MCT in a net cash position of 0.15 times compared to its high net gearing of 0.75-1.04 times in 2013 and 2014 financial years.
As a developer, MCT enjoys above-average margins at 44.3%, said Kenanga, with developers under the research house’s coverage seeing a range of 25%-40%. This is due to MCT’s in-house construction unit as well as cheaper land cost – the company’s land-to-gross development value (GDV) is 8.3% on 75% of its remaining landbank compared to 10% seen with most other developers.
In terms of landbank, MCT has some 540 acres in total landbank. For 45% of the landbank, the estimated GDV according to management is RM10.1 billion, said Kenanga. The research house estimates another RM2.8 billion in GDV for MCT’s landbank in Cyberjaya (7 acres) and Dengkil (289 acres) which management excluded in its GDV estimate, implying a total GDV of RM11.7 billion for MCT.
“We note our GDV estimates may be conservative as these future projects could carry higher GDVs later,” said Kenanga. “Assuming RM1 billion sales this year with a 10% increase per annum, company’s (earning) visibility could stretch as long as 11 to 12 years.”
Notably MCT has strong exposure into the affordable housing (priced below RM500,000 per unit) in the Klang Valley, in which 93% of its property development landbank is located. Of this 93%, 43% is in Cyberjaya. MCT’s remaining 7% of landbank is in Johor. Some 25% or RM2.2 billion of MCT’s remaining GDV is in the affordable housing segment, said Kenanga.
While favouring developers within the affordable housing segment, especially in the Klang Valley which sees strong demand, Kenanga advises investors to be cautious with the “extremely volatile” property market and consider avoiding the sector until the dust settles.
Earnings forecast:
StockStalk: Full-year 2014 transaction data from the National Property Information Centre (Napic) showed the overall property market rebounding slightly in 2014 after a two-year decline in terms of full-year transactions. Data shows a 0.8% year-on-year increase in total transactions compared to a 10.9% contraction in 2013.
This is an encouraging sign after market correction seen over 2012 and 2013.
However, a closer look shows that full-year residential property transaction figures for the Klang Valley to decline year-on-year in 2014 despite total transacted value rising. Total transactions for residential properties priced below RM500,000 largely declined year-on-year in 2014 for both Kuala Lumpur and Selangor, while properties priced between RM500,000 and RM1 million increased year-on-year.
This suggests that buyers for the lower price range are still finding difficulties in getting financing, eg affordable segment. In turn, developers with high exposure to this segment may continue to face challenges in the market.
Against this backdrop MCT would not be spared tough market conditions that many developers have been crying out against, most notably seen in the Real Estate and Housing Developers’ Association’s (Rehda) call in March for macroprudential curbs to be relaxed, reporting suffering sales among its members based on a regular survey.
However, MCT can claim several mitigating factors. One, its construction costs will likely only rise by 1.3% compared to a 2.6% figure previously claimed by Rehda following the implementation of the goods and services tax (GST) from April 1, 2015.
This is due to its in-house construction operations although this figure is yet to be fully confirmed, said chief executive officer and executive director Tong to reporters on April 7, 2015.
In addition, MCT’s strong net cash position post-exercises gives plenty of room for financing going forward in this capital-intensive sector, implying cash flow may be less an issue than many peers. Relatively cheaper land costs and above-average margins also give MCT a buffer if push comes to shove in pushing sales. Affordable housing market is far from short on demand – the only question is getting financing to match buying interest.
Zooming out of the picture, Bank Negara’s macroprudential measures are seen to be working in steering the market back to sustainable growth levels and at some point things would likely start picking up again.
Until that time, MCT has promise as a long-term property play for investors keen on taking a position before the sector sails past the current storm. By current indicators the developer seems better equipped to weather the storm than most its comparable peers.
In the long term, its position in Cyberjaya and Dengkil is also promising as the area is seeing strong penetration of infrastructure and connectivity as development moves southwards. While Cyberjaya in particular was the subject of a gold rush of sorts in recent years, in the long term its fundamentals remain solid.
However, more aggressive investors with shorter horizon may do well to look elsewhere for something more immediately exciting. Some 84.92% of the shares base are held by four major shareholders and the liquidity of this stock going forward remains too early to tell.
________________________________________________________________________
Important Note and Disclaimer: This article should not be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware – a reflection of Bursa Malaysia, we say.
You must be logged in to post a comment.