MK Land's Pretty Oversold

Judging from my recent postings, readers may think I am into speculative stocks. Not really, but when the timing is right, certain stocks are worth a ride. These stocks, including Talam, are not your buy and hold kind of stocks, but owing to the confluence of certain important factors, they make decent rides. The other stock that I have mentioned last week which I like is MK Land. Following the high profile, high flying reputation in the last few years, MK Land has had to tone itself down to work down some pressing debt issues. MK Land has taken a backseat while working through that over the last 12 months.

The timing to exit some non strategic businesses is welcomed but prices could be depressed, thus its better to take time. Still, its better to exit the hotels, resorts, nursing college and biscuits businesses. The stock has been walloped so bad. If funding was a bit looser, the owner would be dying to privatise the company. The current share price is still below 30sen. The RNAV is RM1.80!!!!!!!! I suspect if the controlling shareholders have no problem with "over-leveraging already", they would have taken the company private. Seriously, 40-50 sen is a no brainer, now that it has sold off some pieces of land, and should be exiting some non-core businesses soon.

If we wait for everything to fall into place, you would be entering MK Land at 50 sen.

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The principal activities of MKLAND are those of investment holding and the provision of management services. The principal activities of the subsidiaries are property development and property investment, operator of hotel, golf and country club, resort and theme park, provision of educational services and investment holding.

The more notable property project is the Damansara Perdana township project. The project consists of 962 condominium units, 269 units of serviced apartments and 107 units of shops and office suites. The township is strategically located along the Leburaya Damansara Puchong and the Sprint Highway. It is also adjacent to IKEA and Tesco. In addition, MKLAND's flagship project is the RM3 bn Bukit Merah Laketown development in Perak. It consists of a range of resort facilities such as the Marina Village, Waterpark, Eco Park, and the Bukit Merah Lake.
Malaysian Rating Corporation Bhd (MARC) has maintained MK Land Holdings Bhd's BBB+ rated RM60 million outstanding bonds on MARCWatch Negative. The company was first placed on MARCWatch Negative on May 7, 2008 due to liquidity concerns following the deferrment of scheduled payments to build up its sinking fund account.

MK Land has since met the timeline to place RM30 million into the sinking fund account before August 25, 2008 and Tranche 1 bonds has been fully repaid. The company's liquidity position has remained strained despite moderate improvement in profitability measures for the six months ending Dec 31, 2008.

To address its upcoming final redemption of the rated bonds in September 2009 of RM60 million, the company had announced on Jan 20, the disposal of 23 acres of land located in Damansara Perdana in Petaling Jaya, Selangor.

For the first half of financial year ended Dec 31, 2008, the company had recorded a pre-tax profit of RM18.2 million, erasing a pre-tax loss of RM16.8 million previously, due to improved sales of development properties.

However, it registered negative net cash from operations of RM2.3 million Its cash and bank balances and deposits with licenses banks remained at RM29 million relative to short-term borrowing of RM300.2 million which includes the outstanding bonds and RM137.9 million of bank overdrafts.

MK Land's revenue increased 82.3% to RM124.6 million for the six months ended Dec 31, 2008, from RM68.4 million a year earlier. It returned the company to the black with a net profit of RM10.1 million or 0.84 sen a share from a loss of RM18.3 million previously. While the profit was boosted by other operating income of about RM8.9 million, the management pointed out that property sales have improved since last July, which was the start of the company’s current financial year ending June 30, 2009 (FY09), despite the difficult market condition.

“We achieved total sales of RM150 million to date (within seven months since July last year) which is significantly higher than the sales recorded in the corresponding period in FY08,” said Mustapha Kamal. According to him, sales for the quarter ended Sept 30 last year amounted to RM59.3 million. The numbers had remained steady in the quarter ended Dec 31, 2008, with sales of RM60.5 million. Meanwhile, “in-hand sales” since the start of the year amounted to RM30.4 million.

Mustapha Kamal stressed that the RM150 million sales came mainly from projects such as the Armanee condominium and Metropolitan Square, not low-cost housing projects that have low or zero margin. Thus, when these sales translate into revenue, it will contribute decent profits to the group. On another note, Mustapha Kamal said he had no choice but to acquire a 9.2-hectare land in Petaling Jaya from MK Land for RM150 million cash last month. He said that MK Land, which was looking to raise funds, couldn’t find a buyer who would offer a fair price for the land.

According to him, MK Land needed the cash flow to kick-start or resume work on certain projects in order to generate the revenue and to avoid delaying the delivery of certain projects, which will result in the company paying “late ascertained damages”.

“I have to sell my privately owned properties before I could pay the RM150 million to MK Land,” he said. MK Land will use proceeds from the land sale to generate more cash flow in order to help repay a RM60 million bond due in September. The bond is deemed to be the last hurdle for MK Land, the management said, as the group’s remaining RM445 million borrowings are essentially project financing, which will only be redeemed as and when the company sells and develops the projects in stages.

He is confident that MK Land is on the path to recovery. He said the company has several projects in the pipeline, in locations such as Damansara Perdana, Damansara Damai, and Jelapang, Ipoh.These projects have obtained the necessary approvals from the authorities and involve 5,639 units of properties with a combined gross development value (GDV) of RM4.1 billion. Depending on the economic situation, the GDV of these projects could be realised within three to five years.

p/s photos: Park Ji Yoon