Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with a lower SOP-based fair value of RM0.86/share from RM0.87/share after removing the Icon Residence project from our RNAV calculations following the disposal of the land (Exhibit 1). Our FV reflects a neutral 3-star ESG rating (Exhibit 2).

• Mah Sing entered into a sale and purchase agreement (SPA) to dispose of a 3-acre (13,965 sqm) freehold land situated at Pykett Avenue, George Town, Penang to Morningjoy for RM66mil.

• As at 30 June 2022, the land carried a gross development value (GDV) of RM280mil under the project called Icon Residence. We lower our FY22F/FY23F/FY24F earnings by 3%/4%/5% to exclude the earnings contributions from the project.

• The land was acquired by Mah Sing’s wholly-owned Klassik Tropika on 2 December 2009 to develop a high-end condominium. However, Mah Sing decided to dispose of the land due to the current lagging demand for luxury properties.

• We estimate that the land sale could generate a net gain of RM1.8mil after deducting all estimated expenses.

• The 10% deposit amounting to RM6.6mil was received upon the execution date of SPA (12 September 2022) with the balance of RM60mil to be secured within 3 months from the completion of the sale.

• Upon the completion of the disposal in 4QFY22, we expect the group’s net gearing ratio to improve to 0.32x from 0.34x. Meanwhile, its total remaining undeveloped landbank will drop marginally by 0.2% to 1,979 acres.

• The disposal price is at a 12% premium to the appraised value of RM59mil by independent valuer, CBRE WTW Valuation & Advisory.

• We are positive on the group’s strategy to monetise its undeveloped land to free up cash for future land acquisitions. Meanwhile, this also allows Mah Sing to focus on M-series projects with better market prospects and faster turnaround time.

• The stock currently trades at a bargain FY23F PE of 9x vs. a 4-year average of 11x and offers an attractive FY23F dividend yield of 6%.

Source: AmInvest Research - 13 Sept 2022