MKH's FY24 results missed expectations with flattish earnings dragged by its property segment despite encouraging growth in plantations. Still, Kenanga IB said it likes MKH for its expanding plantation business in Kalimantan. Its exposure to affordable and transit-oriented development (TOD) property offerings, and declining sales trajectory prompted the house to cut its FY25F earnings by 10% and raise its property discount to RNAV to 60% (from 50%) due to poorer translation to profits.

The group's FY24 core net profit missed expectations at only 91% of full-year forecast and market expectations at 89% of the full-year consensus estimate. The variance against the forecast came largely from softer-than-expected property sales.
YoY, its FY24 revenue was flattish on moderate top-line performance, due to poorer property development. Also, with the lower margins from these projects, it had offset the stronger performance from the plantation segment (4% revenue growth, 90% operating profit growth) thanks to higher oil extraction rate and CPO prices. This led to its core net profit also end flattish.

QoQ, its 4QFY24 revenue rose by 8% from better top line performance from property development (as key projects were already at the tail-end) and plantation (higher production of fruit bunches). All in, its core net profit increased by 73%.

As for the outlook, landed retail commercial shops with a total GDV of RM835.6m will be introduced in FY25 to fuel MKH's property pipeline, with launches staggered based on take-up rates. Unbilled sales of RM547.3m should sustain its property development earnings over the next two years. Its TOD projects will continue to attract buyers for their accessibility to public transport. The house expects a stable outlook for its plantation segment on firm CPO prices and a rising production volume supported by stable demand for CPO from high-consumption countries such as China and India.

Kenanga has cut the FY25 earnings forecast largely to reflect softer property sales assumptions given the poorer project realizability being expected. However, this was cushioned by better inputs for its plantation sector, led by a revised CPO target of RM4,000/MT which translated to a net earnings cut of 10%.

Despite its earnings miss, MKH is still being merited for its long-term viability backed by: (i) its property business focusing on affordable and TOD projects, (ii) its expanding plantation business in Kalimantan, and its proximity to the new capital city of Indonesia offering various opportunities. Maintain OUTPERFORM.