MKH: Inching Towards Recovery

Result Update

For QE31/12/2018, MKH's net profit rose 411% q-o-q or 59% y-o-y to RM26 million while revenue was mix- down 20% q-o-q & 38% y-o-y to RM268 million. Despite the decrease in revenue by RM65.7 million, the profit before tax for the current quarter of RM41.1 million was higher as compared to the preceding quarter of RM25.2 million mainly due to inclusion of unrealised foreign exchange gains of RM9.4 million in the current quarter as compared to unrealised foreign exchange losses of RM9.5 million in the preceding quarter. Excluding unrealised foreign exchange gains/(losses), the profit before tax is lower in the current quarter of RM31.7 million as compared to the preceding quarter of RM34.7 million mainly due to lower profit contribution from both the property and construction and the plantation division as a result of lower gross profit.

Note: MKH's latest result was released on February 27, 2019.

Table: MKH's last 8 quarterly results

Graph 1: MKH's last 33 quarterly results

MKH's management runs a very tight ship. Despite a tough operating environment for property development and plantation, the group still managed to stay in the black for every segment. See the segmental results for 1Q in the last 3 years (ie. FY2017, FY2018 & FY2019).

Graph 2: MKH's segmental results for 1Q 2019, 2018 and 2017.

Future Prospect

MKH's bottom-line is dependent on 2 major segments- Plantation and Property Development. For Plantation segment, the CPO price chart shows that CPO has broken above the downtrend line, and it is now forming a base for a possible recovery. As for Property Development segment, MKH's unbilled sale as at Dec 2018 was RM1.0 billion as compared to RM903.5 million last year. Despite the gloom and doom for property sector, MKH is expected to do reasonably well for this business as its landbank is fairly well-located and its tied up with Panahome of Japan to build sustainable homes will be a strong drawing factor. Panahome is part of the Panasonic group. For more, go here.

Chart 1: CPO's weekly chart as at Apr 12, 2019 (Source: Tradingeconomics.com)

Financial Position

MKH's financial position as at 31/12/2018 is deemed adequate with current ratio at 1.61 times and total liabilities to total equity at 1.01 times.

Valuation

MKH (trading at RM1.38 as at 4:30pm) is now trading at a trailing PER of 10x (based on last 4 quarters' EPS of 13.5 sen). Price to book is at a very attractive 0.5 x (based on NAB of RM2.72 per share as at 31/12/2018). Dividend yield of 2.5% is still respectable despite heavy investment in the plantation segment. Overall, MKH is considered fairly attractive.

Technical Outlook 

MKH formed a base around RM1.10-1.40 over the past 1 year. An upside breakout of RM1.40 could be the start of the recovery for this stock.

Chart 2: MKH's weekly chart as at Apr 15, 2019_12.30 (Source: Malaysiastock.biz)

Chart 3: MKH's daily chart as at Apr 15, 2019_12.30 (Source: Malaysiastock.biz)

Conclusion

Based on satisfactory financial performance, reasonably healthy financial position, fairly attractive valuation and promising technical outlook, MKH is a good stock to consider for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.