| Investment Bank | Mercury Securities Sdn Bhd |
|---|---|
| TP (Target Price) | RM0.64 (+61.0%) |
| Last Traded | RM0.395 |
| Recommendation |
A leading investment bank has reaffirmed its “BUY” recommendation for the property developer, citing robust future prospects driven by strategic realignments and a strong development pipeline. Despite some short-term headwinds, the company is poised for growth with an optimistic outlook on its diversified projects and disciplined financial management.
Performance Review and Key Challenges
The third quarter of financial year 2025 saw the company report a higher cost of sales margin, primarily due to a one-off RM34 million accounting adjustment. This adjustment stemmed from the reclassification of a future project at Kita @ Cybersouth from serviced apartments to commercial shops, necessitating infrastructure cost reallocation. Management views this as a non-recurring event, suggesting potential for improved margins going forward.
Key challenges include the prevailing property market sentiment and uncertainties surrounding the Sales and Service Tax (SST), which have led to the deferral of some planned launches into FY26. The investment bank acknowledges these macroeconomic uncertainties contribute to a steep discount in the company’s current valuation compared to the broader property sector.
Strategic Initiatives and Future Outlook
The company’s “8 x 8 Strategy,” focusing on optimised land utilisation, township expansion, and a diversified product mix across residential, commercial, industrial, and hospitality segments, is expected to drive future performance.
A significant positive development is the potential monetisation of 3.5 acres of remaining Johor land, with active discussions underway and a deal anticipated for next year. This move is expected to free up resources for reallocation to the core Klang Valley market, especially following the newly secured Kwasa Land development, which boasts an estimated Gross Development Value (GDV) of RM8.3 billion.
While launches for FY25, totalling RM958.2 million in GDV, were below the initial yearly target, the indicative launch pipeline for FY26 is robust, estimated at RM2.6 billion. The company holds a substantial landbank of 3,778 acres with a potential GDV of RM33 billion, complemented by healthy unbilled sales of RM1.34 billion, ensuring strong earnings visibility.
Furthermore, the company plans to redeem its RM93 million perpetual sukuk maturing in March 2026, without immediate plans for new issuance, underscoring its disciplined financial management. Efforts are also underway to review selling prices, cost structures, and design optimisation to mitigate potential SST impacts.
Valuation and Recommendation
Based on its analysis, Mercury Securities Sdn Bhd reiterates a “BUY” rating with an unchanged RNAV-based target price of RM0.64. This target price implies a substantial upside of approximately 61% from the last traded price of RM0.395. The target price valuation suggests a FY25-26E forward Price-to-Earnings (P/E) range of 5.25x-6.0x, which is significantly below the property sector average, reflecting the current cautious macroeconomic environment.
The compelling risk-reward profile is supported by a healthy unbilled sales pipeline, strong launches across various segments, leadership in affordable housing, and prudent financial and landbank management, positioning the company favorably for long-term growth.
