PETALING JAYA: Just as investors were getting more downbeat on the prospects of MK Land Holdings Bhd due to expectations of weaker earnings in the absence of meaningful new launches, “a shot in the arm of sorts” has come in the form of a land sale by the company.
To recap, earlier last week, the property developer announced that it would be selling off nine parcels of leasehold land totalling about 195.84 acres in Kamunting, Perak, for RM72mil.
The company, whose main landbank is in Damansara Perdana, is raising the cash to improve its financial position. It expects to record a net gain of RM32.14mil from the disposal, equivalent to a profit after tax for two years. For the financial year ended June 30, 2016 (FY16), it made a net profit of RM16.3mil, down from RM53.9mil in FY15.
Meanwhile, its first-half FY17 net profit, which came in at RM8.5mil, constituted around 31% of PublicInvest’s full-year estimate.
Its current borrowings stand at RM33.95mil, out of which RM27.42mil is long-term in nature.
MK Land plans to use RM47mil from the proceeds of the Perak land sale as working capital and the remaining RM25mil for ongoing and future development project expenses.
PublicInvest expects the company’s net cash to increase to about RM122mil or 10 sen per share upon the completion of the deal in 18 months’ time.
Although positive on the land sale, the research firm feels that MK Land’s core earnings will remain weak in the near term with no meaningful new launches.
Some quarters do not rule out more land sale not unlike previously. The company did not come back to queries from StarBiz.
MK Land has close to 5,000 acres of land, with more than 4,000 acres in Perak, of which 3,000 acres are located in Lembah Beriah.
PublicInvest notes that among the land earmarked for sale by MK Land is the Setiawangsa land valued at around RM96mil or RM40 per square foot (psf) and a five-acre parcel in Damansara Perdana that could be offloaded for about RM500 psf. The research firm says based on its realised net asset value estimates, the land in Setiawangsa is worth RM40 psf, while the residential land in Damansara Perdana is at RM200 psf.
MK Land’s Damansara Perdana near the bustling Taman Tun Dr Ismail-Lebuhraya Damansara Puchong interchange area is its crown jewel. The company bought most of the land and started developing it in 1996, just prior to the 1997/1998 Asian financial crisis.
Up north, the company also has ongoing property development in Meru, Perak.
Some six years ago, Mammoth Empire Land Sdn Bhd and MK Land joined hands to develop the Empire Damansara project consisting of Empire City and Empire Residence.
But things appear to have slowed down since Mammoth Empire came into the picture.
According to PublicInvest, after the launch of its first phase of Residensi Suasana@Damai condominium project last year, there has not been any new projects launched in the Klang Valley. The development has three phases with a combined 780 units and estimated at RM400mil.
“Going forward, we believe that new sales might be helped by en-bloc sales for its new project to minimise selling risks. As for unsold stocks, we understand that it still has around RM100mil worth of unsold units from Armanee Terrace and around RM600mil from the remaining phases of the semi-detached The Rafflesia,” the research firm says.
Changes could be underway. Early this year, the company appointed its former chief operating officer, K. Mohanachandran, as the new group chief executive officer following the departure of Lau Shu Chuan, who had been at the helm since June 2011.
The company, which built its reputation on developing affordable housing, reportedly said that it plans to build 500 affordable housing units in Perak this year. A single-storey affordable house would fetch below RM300,000 per unit.
It also plans to resume development at the 3,000-acre mixed development project, Bandar Teknopolis Perdana (formerly known as Lembah Beriah) in Perak, after halting the project following the launch of the first phase of residential homes 10 years ago.
Besides property development, MK Land also operates hotels and resorts and a water theme park, as well as the provision of education services.
Tan Sri Mustapha Kamal, a director in MK Land, controls the company with a 40.53% stake held indirectly, together with a 6.84% interest held directly.
Another director, Datuk Kasi K.L. Palaniappan, holds a direct 16.036% stake after disposing some 10 million shares at the price of 31.4 sen and 31.5 sen.
The counter closed at 32 sen for a market cap of RM398.4mil.
At this price, the stock is trading at a price-to-earnings ratio of 22.41 times and a discount to its net asset per share of 97 sen.