MK Land likely to shine again

MK Land Holdings Bhd

By PublicInvest Research

Outperform (maintained)

Target price: 80 sen

WE met the management recently, and came away comforted that the group's degearing exercise and business streamlining (liquidated ascertained damages issues and disposal of non-core assets) are within our expectations.

We understand that the group is toying with the idea of paying dividends again, in line with the group's improved profitability and strengthened balance sheet, which we think could spark interest on the stock again.

There are RM400mil of unbilled sales.

MK Land will continue to focus on pushing the remaining units in Rafflesia (semi-Ds) and Metropolitan Sq (condominiums) with a combined RM760mil in gross development value (GDV).

Admittedly, sales are still slow partly due the cooling measures implemented (by Bank Negara) and more so, due to negative branding plaguing the company.

Nonetheless, we believe these properties are of marketable quality due to its strategic location.

We understand the group is exploring more new products such as bungalows and condominiums, possibly in the next one to two years.

Separately, MK Land reassured us that the liquidated ascertained damages issues are now behind them, and the priority now is to complete the delayed project.

We estimate MK Land still has about RM90mil outstanding from the previous land sale, which will definitely help the group to reorganise its debt structure to be more efficient.

We also note that MK Land's total debt has improved by 10.6% sequentially from RM220.2mil to RM197mil, which is in line with

the group's plan to reduce debt.

Net gearing is 0.11 times now, and we do not discount the possibility of further land sale which will put the group comfortably in net cash position.

Hypothetically, a 25-acre Daman-sara Perdana and the 55-acre Setiawangsa land sale could add about RM320mil to the war chest, or equivalent to the group's market capitalisation now.

We maintain an outperform call with 80 sen target price, or a 50% discount of its revised net asset value estimate of RM1.56 per share.

We believe MK Land, the largest landowner (about 170 acres net land) near the Taman Tun Dr Ismail-Damansara-Puchong Highway interchange should benefit from rising land prices and positive catalysts such as potential dividend or land sale could give the much needed sparks to the stock.

Bursa Malaysia Bhd

By Maybank IB Research

Hold (unchanged)

Target price: RM7.00

ITS RM79mil first-half net profit (increase of 3% year-on-year) made up 49% to 53% of house's and street's 2012 estimates.

There is no change to our earnings forecasts and target price as we continue to peg Bursa at a 20% discount to our target 25 times for Singapore Exchange (SGX) i.e. at 20 times current year earnings plus excess cash of 91 sen per share (as of June 30, 2012).

Within our coverage universe, we are buyers of SGX (target price: S$7.43) for its structural growth potential, and sellers of Hong Kong Exchange (HK$388; target price: HK$90.00).

The lower trading revenue from equity in first half of 2012 (decrease of 10% year-on-year) was partially offset by an improvement in stable revenue (increase of 11% year-on-year).

Together with lower depreciation charges (decrease of 16% year-on-year), this led to a small 4% year-on-year rise in pre-tax profit (net profit increased 3% year-on-year).

The lower trading revenue from equity was, in turn, due to slower trade value of RM212bil (lower by 10% year-on-year), with average daily trading value (ADV) at RM1.74bil (first half of 2011: RM1.93bil).

A 13.5 sen net interim dividend per share (increase of 4% year-on-year), representing a 91% net profit payout, was in line.

Its RM38mil second-quarter net profit was down 7% quarter-on-quarter on 16% lower trading revenue from equity which was offset by a 33% rise in trading revenue from derivatives, and higher stable income (increase of 17%).

Equities ADV fell 23% quarter-on-quarter to RM1.52bil with velocity down seven percentage points to 27%.

The derivatives market, however, was active with average daily contracts up 30% quarter-on-quarter to 40,400 which was the highest on record.

Its internal focuses are on improving the infrastructure and services, new and attractive product offerings, widening distribution channels, increasing sales force and providing greater accessibility.

We maintain our forecasts for a 10% to 11% growth in 2012-13 net profit with the main assumptions being RM1.8bil equities ADV in 2012 (2011: RM1.8bil), and improving to RM2bil in 2013.

We project revenue from equity activities to contribute 48% to 49% of operating revenue in 2012 and 2013.

The recent selling pressure on the stock (share price hit a low of RM5.91 on May 31) was due to foreign funds exit, after Bursa was reclassified from MSCI's Mid Cap Index to Small Cap Index in June.

Foreign shareholding on the stock has since plunged to a low of 10% as at end-June, from 16.8% at end-May 2012 (versus a peak of 41.7% as at end-December 2007, before the global financial crisis).

Supermax Corp Bhd

By MIDF Research

Buy (initiate coverage)

Target price: RM2.48

LEADING international manufacturer, distributor and marketer of high-quality medical gloves Supermax Corp Bhd has developed a series of successful brands that are globally recognised.

Currently, Supermax ranks as the second largest glove manufacturer in the world with a total installed capacity of 17.6 billion pieces annually.

It currently operates nine manufacturing plants based in Malaysia, which produce 17.6 billion pieces of gloves annually.

This is equivalent to 11% of the world demand for latex examination gloves. Also, Supermax owns six distribution centres-cum-corporate offices based in the United States, Brazil, Canada, Germany, Belgium and the UK, and collaborates with 750 independent distributors around the world.

With focus shifting to nitrile gloves, Supermax is looking to double its nitrile gloves production capacity from 5.2 billion pieces per annum to 10.5 billion pieces per annum in 2013. This would translate to a total production mix of 52% from 35% currently.

With its distribution operations spanning six countries, we expect Supermax to generate growth mainly from its distribution operations. In fact, it has highlighted global trading, sales and marketing to form a third income stream for the group.

Supermax has been able to achieve a commendable earnings and revenue growth over the last five years, with revenue recording a compounded annual growth rate (CAGR) of 20.6% resulting in a net profit CAGR of 21.3% for the same period.

Starting from the financial year ending Dec 31, 2012 (FY12) onwards, Supermax has revised its dividend policy upwards, with a relatively impressive dividend payout ratio of 30%.

This should bode well for investors looking for steady income distribution over the long run.

Therefore, we are initiate coverage on the stock with a “buy” recommendation, and a target price of RM2.48. The target price is derived from 11 times its price-to-earnings ratio (PER) FY13, based on its three-year historical PER average. We like the company for its strong brand name, global operation, strong earnings growth and stable dividend policy.

We believe the stock is undervalued at the current price, thus offering significant upside potential for price appreciation.

Malaysia Building Society Bhd

By RHB Research

Market perform (maintain)

Target price: RM2.46

MALAYSIA Building Society Bhd (MBSB) announced recently that it had entered into a conditional share sale agreement (SSA) with Ken Holdings for the disposal of 100%-owned Gadini Sdn Bhd for a cash consideration of RM40.6mil.

Ken will also settle advances of RM13.6mil and other liabilities totalling RM2mil owed by Gadini to MBSB. This will bring the total cash proceeds MBSB will receive for the sale of Gadini to RM56.2mil.

Gadini's principal activity is in property development and it owns parcels of vacant leasehold land totalling to 22.8 acres in Johor Baru. In January 2009, MBSB announced that Gadini had entered into an agreement with Sazean Holdings for the disposal of the above-mentioned land for RM70mil.

However, Sazean subsequently decided to novate all its rights and liabilities to Ken, resulting in the SSA announced.

The difference between the RM56.2mil in total proceeds versus the RM70mil sale of land is due to taxes. According to the announcement, if Gadini had disposed of the properties for RM70mil, the net proceeds of the disposal after taking into account taxes would have been the same as the total cash flow of RM56.2mil receivable from Ken.

We note that Ken plans to undertake a mixed development project with an estimated gross development value of RM1.2bil on the properties, which has an estimated gross development profit of RM300mil over six to seven years. While the disposal means MBSB would forego property development profits, we opine that it will remain focused on its financing business.

Thus, according to the announcement, the RM56.2mil proceeds to be received will be channelled towards the financing business.

The disposal of Gadini is subject to the approval of Ken's shareholders and is expected for completion in the fourth quarter of 2012. The proposed disposal is expected to result in a gain of RM6.75mil.

This amount is not significant, so we are keeping our 2012 numbers unchanged.

Therefore we maintain a market perform view on the stock with a target price of RM2.46.

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