PETALING JAYA: MKH Group Bhd offers several unique propositions in the property development space and has potential in its plantations moving forward, says Kenanga Research.
Given these prospects, the research has has initiated a coverage on the prominent Kajang-based property developer, which is also involved in oil palm plantations in Kalimantan, Indonesia.
In a note to its clients, Kenanga Research said MKH’s focus on affordable houses with strong emphasis on transit-oriented development (TOD) has kept the group’s portfolio relevant.
MKH’s products are also skewed towards fair pricing, with an estimated 50% of its past and ongoing projects kept below RM500,000, it added.
“We gather the mix to be close to our favoured affordable-centric developer Mah Sing Group Bhd
, which has 65% of its sales being derived from units priced below RM500,000.
“We think that having a strong mix of affordable housing projects ensures sustained relevance to prospective house buyers as inflationary concerns continue to press living costs,” the brokerage firm said.
MKH’s current projects include Mirai Residences, the Kajang 2 mixed development, Nexus, Kajang Tower B and C and Hillpark Residence Kajang.
With a land bank of 627.5 acres, Kenanga Research noted that MKH’s pipeline indicates a remaining gross development value (GDV) of RM9.51bil, with a heavy emphasis on the development of Kajang-Semenyih areas.
The group’s longer-term projects in Kajang 2 – Precinct 1 and Precinct 2 – are focused on establishing a flagship township development with a mix of both high-rise and landed houses as well as commercial products.
“MKH typically set a launch target of RM800mil in GDV pre-pandemic and the above pipeline could be indicative of a more encouraging performance outlook, which is about RM1.06bil average annual sales target, likely pegged to a higher take up thanks to its strategic locations of its projects,” the research house said.
Any additional land acquisitions or proposed developments beyond this scope would be a further boost to group earnings, it said.
Meanwhile, the group’s plantation segment appears to be a top performer among large-cap palm oil planters, said Kenanga Research.
“It is likely to see a portfolio expansion in the near term,” it added.
MKH’s oil palm plantation (MKHOP) manages a land bank of about 18,400ha in Kalimantan and is in the process of acquiring an additional 5,000ha.
“The group’s plantation operations are highly efficient, with a segment return on equity of 14%, which is above the large-cap planters’ three-year average of 13% and sector average of 10%.
“Future acquisitions of its palm oil estate land bank around 30% could further drive its contributions,” added Kenanga Research.
While MKHOP’s oil extraction rates are slightly below industry levels at 21% versus 23%, the brokerage firm said this may be aligned in the near term as the group is in the midst of upgrading its capabilities.
Additionally, MKH group operates in a low gearing environment, which could be key in the group’s long-term growth objectives.
Kenanga Research has an outperform call on the stock with a sum-of-part target price of RM2.15.
“On a side note, we do not discount further interest in the stock could develop from the pending spin-off listing of its plantation division, albeit this is yet to be factored into our assumptions,” the brokerage added.
