MKH: Powered by Property & Palm Oil

Background

MKH Bhd (formerly, Metro Kajang Bhd) is involved in property development, plantation, hotel & trading. It is an established township developer in Kajang/Semenyih and Greater Klang Valley. Its strong foothold in Kajang/Semenyih makes it the largest beneficiary of the improved public transport connectivity via two MRT stations within Kajang. Its 16000 ha of oil palm estates in Indonesia will be entering its most productive phase over the next 1-3 years.

The various segments contribution to the group's revenue and result are tabulated below. For FY2015, plantation segment incurred a loss of RM29 million due to low CPO and palm kernel prices. F0r FY2016, it is likely that this segment will contribute positively to the group profits as CPO prices have improved significantly.


Diagram: MKH's segmental revenue & profits in FY2015

Recent Financial Performance

In QE31/12/2015, MKH's revenue dropped 24% q-o-q but rose 28% y-o-y to RM266 million while net profit rose 152% q-o-q or 104% y-o-y to RM62 million. Revenue dropped q-o-q mainly due to lower revenue contributed by the property development segment while net profit rebounded strongly due to higher profit recognition by the property development segment and the turnaround in the plantation segment (as a result of higher selling prices for CPO and palm kernel) as well as forex gains of RM23 million as compared to forex losses of RM18 million in QE30/9/2015.


Table: MKH's P&L for QE31/12/2015


Table: MKH's P&L for the past 10 quarters

Historical Financial Performance

MKH's last 10 years performance is very commendable. One thing is clear: The group has invested substantially in acquiring land for development as well as planting its 16000-hectare estate in Kalimantan (as reflected in the cash flow summary below). The investment in its estate and building up its landbank means that the group will be in strong position to boost its earnings going forward.


Table: MKH's P&L for the past 10 years

Financial Position

MKH's financial position is deemed fairly satisfactory as at 31/12/2015. Current ratio stood at 1.7X while total liabilities to equity at 1.3X. The high gearing ratio is due to aggressive landbanking activities in the past 3 years. However, with strong cash flow from operations, the high gearing can be brought down quickly if the group's aggressive land acquisition ceases.

Valuation

MKH (closed at RM2.63 yesterday) is now trading at a PER of 9.4X (based on last 4 quarters' EPS of 28.1 sen). At this PER, MKH is deemed fairly attractive.

Technical Outlook

MKH is likely to have made a bottom at around RM2.00-2.40. The 10-week SMA line & 20-week EMA lines have crossed above the 30-week EMA line at RM2.35. MACD, which crossed above the MACD signal line in early 2015, is about to go above the zero line. When that happens MKH could enter its next upleg. +DMI is rising while -DMI is dropping. At the same time, ADX & ADXR are above the 20 mark. All in all, these 2 technical indicators plus the price action suggest a bullish outlook for the stock.

 
Chart 2: MKH's weekly chart as at April 4, 2016 (Source: ShareInvestor.com)

MKH's long-term chart shows a stock that had rallied from a low of RM0.60 in 2009 to a high of RM4.00 in 2014. Its decline to RM2.00 in late 2015 represents a retracement of 60%. This level of retracement is neither too little nor too excessive. If it had been excessive (say, more than 60%), one would be concerned about some hidden, underlying problems. And yet, it is sufficiently deep; thus flashing out value for investment. (Note: The monthly chart is plotted on a log scale which may not bear out the severity of the recent decline.)


Chart 3: MKH's monthly chart as at April 4, 2016 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance & position, fairly attractive valuation & improving technical outlook, MKH could be a good stock for a long-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, MKH.