Dissecting Malita Investments p.l.c.

The research team at Calamatta Cuschieri has recently distributed an equity research report on Malita Investments p.l.c. (“MLT” or “Group”) with a “Hold” recommendation and a one-year price target of €0.97, implying a potential capital upside of 6.6% to the current price of €0.91 as at the date of this writing.

MLT is a property investment company that owns, develops and manages immovable properties in Malta. The Group has been capitalised by the Government of Malta (GoM) through a €25 million cash injection as well as through the transfer of the beneficial ownership of the Malta International Airport (MIA) and the Valletta Cruise Port p.l.c. (VCP).

The GoM also granted MLT with the title of temporary emphyteusis over the Open-Air Theatre and the new Parliament Building in Valletta. During 2017, MLT implemented additional improvements to the Parliament Building amounting to €7 million, which has resulted into additional lease income receivable by the Group.

Moreover, MLT has identified a shortage in affordable housing within the Maltese housing market. At the behest of the GoM, the latest project being undertaken by the Group relates to the development of the Affordable Housing project. Upon completion, such project will consist of 680 apartments, 270 garages and 350 car park spaces.

The Group is in line with their schedule of completion in terms of the housing project and expect the whole project to be completed during FY2022. The capitalised cost to date on this development amounts to €7.5 million.

Following the issuance of MLT’s latest interim financial statements, the 2019 LTM revenue figures demonstrate a partial increase in revenue of 0.4% to €8 million. In line with a yearly contracted rental increase, we expect current rental income excluding the affordable housing project to increase at an average rate of 3% per annum.

In terms of the affordable housing project, management confirmed that the Group is expected to start receiving rental income project during FY2022.

As per H1 2019, administrative expenses decreased by 31.4% in comparison to the previous corresponding period, due to previously incurred one off project management fees. We expect administrative expenses to increase marginally over time in line with inflation. We also expect a further upsurge in administrative expenses from FY2023 onwards upon commencement of operations of the affordable housing project.

The decline in administrative expenses as per 2019 LTM results (-18.2%), coupled with the marginal improvement in revenue (+0.4%), eventually led to an increase in EBIT margin from 93.6% in FY2018 to 96.9% as per 2019LTM results. We expect EBIT margin to further improve to 97.2% during FY2019, in line with the projected improvement in revenue.

We are of the view that the Affordable Housing Project will play a crucial role in enhancing and improving MLT’s existing revenues, whereby it is projected that from FY2023, revenue derived from the housing project will approximately amount to 37% of MLT’s total revenue, thus increasing the possibility of a growth in dividend distribution thereon.

Although we like the business model of the Group, we believe the current share price of €0.91 already reflects large portions of future rental income expected to be generated from future disclosed projects (P/E FY2018: 29.1x and P/E FY2020: 26.3x). However, given MLT’s low risk business model, the maintained dividend yield of 2.5%, together with a potential partial upside in share price over the next few years, we rate the shares a Hold.