MCL Land took a hefty US$180.2m write down of development properties for sale to post an FY08 net loss of US$107.3m, compared to a net profit of US$61.9m last year. Omitting the write down, core profits were actually in line with expectations, improving 23% yoy, following the completion of The Grange, Mera Springs and The Esta in FY08.

MCL has become the first developer under our coverage to make a write down of its landbank, and the scale of the write down is much larger than the US$28m we had expected. We estimate that the management is forecasting property values to decline by about 20% on the average, prompting the prudent write down.

The Group expects The Fernhill, Tierra Vue and Hillcrest Villa to be completed this year, Waterfall Gardens and D’Pavillion to be completed in 2010 and the Peak@Balmeg in 2011. The progress of the sales of new units at the Peak@Balmeg and D’Pavillion has been slow, with 25% and 28% of the units being committed for sale respectively, but cash flows will continue to come in from the other projects under construction.

We expect MCL to continue to market the remaining units at the Peak@Balmeg and D’Pavillion in phases. New launches are likely to be phased out further into the future. Having already been written down based on current weak market conditions, these future projects could still turn profitable when they are subsequently launched at a time when the market has recovered.

MCL’s balance sheet remains strong with a net gearing of about 0.5x, which we expect to be pared down as projects become completed this year and next. However, it has a high exposure to the mid-end residential segment, which may continue to see weak demand as the recession persists. Maintaining our HOLD recommendation with a target price of $0.74, pegged to a 70% discount to RNAV.