Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with an unchanged SOP-based fair value of RM0.86/share, which reflects a neutral 3-star ESG rating (Exhibits 10 & 11).

• Our earnings forecast and sales take-up assumptions are also maintained following our visit to M Vertica in Cheras recently.

• M Vertica is an 11.3-acre mixed development, comprising 5 blocks of serviced residences, with total of 3,684 units. Also, the project has 74 units of 2-storey retail shops. The project carries an estimated gross development value (GDV) of RM2.2bil (Exhibits 1 & 2).

• M Vertica offer 2 types of layouts with a built-up area of 850 sq ft for a 3-bedroom layout and 1,000 sq ft for 4-bedroom design (Exhibits 7-8). Both types are ideal for small and mediumsized families.

• The average selling price per square feet (psf) for M Vertica ranges from RM530 to RM571 psf, which is considered attractive as compared to surrounding new projects, such as Nexus @ Taman Pertama (RM650 psf) and Sunway Velocity 2 (>RM800 psf).

• The 4.5-acre landscaped podium with facilities built on top of the residential parking, comprises over 40 facilities for all age groups, including children's water splash area, 50-metre infinity swimming pool, karaoke room, theatre, co-working space and badminton (Exhibits 5 & 6).

• M Vertica also provides high-performance lifts, which will be able to travel from the ground floor to top floor in 45 seconds under normal circumstances.

• M Vertica is located 500m from the Maluri Light Rail Transit (LRT) & Mass Rapid Transit (MRT) Interchange, and 800 metres from the Taman Pertama MRT Station (Exhibit 4). The construction of a covered walkway to the Maluri MRT is slated to be completed by 1QFY23.

• M Vertica is accessible via major roads such as Jalan Cheras, Jalan Loke Yew, Jalan Pudu, Jalan Tun Razak, the KLSeremban Highway and SMART tunnel.

• To improve traffic flow, Mah Sing will carry out upgrading works in Jalan Cheras and Jalan Ikan Ayu, including widening existing roads and building a direct ramp from Jalan Cheras to M Vertica’s car park.

• Within a 5-km radius from M Vertica, there are a few reputable international schools as well as local schools (Exhibit 9). Additionally, the development project is only 1 km away from the shopping malls of AEON Taman Maluri and Sunway Velocity.

• M Vertica has delivered vacant possession for Tower A and B in June 2022. The construction of Tower C, D and E are expected to be completed in 1QFY23.

• Despite the negative perception on the project’s high density, M Vertica appears to be well received by home buyers given its prime location, which is only 3km away from the financial hub, Tun Razak Exchange and 5 km from the Kuala Lumpur Golden Triangle Zone and Bukit Bintang area. Given the affordable pricing structure coupled with a wide variety of facilities, we believe that M Vertica appeals to younger buyers, particularly first-time home owners who wish to seek convenience as well as prefer a lifestyle that comes with living in the heart of Kuala Lumpur. This is evidenced by its strong average take-up rate of 83% currently (Exhibit 2).

• In light of the current uncertain economic environment, we anticipate that management will adopt a more conservative approach in capital management. Hence, we lowered our forecast for dividend payout ratio in FY22F-24F to 45% from 50%.

• The stock currently trades at a bargain FY23F PE of only 7x vs. a 4-year average of 11x and offers an attractive dividend yield of 6%. We believe the mid-to-long-term outlook for Mah Sing remains positive backed by its:
  (i) savvy execution and quick turnaround business model;
  (ii) efforts in digital marketing and strength in offering affordable properties at strategic locations; and
  (iii) healthy FY23F gearing of 0.3x with 65% of borrowings in fixed rate, which will not be adversely impacted by higher interest rates.

Source: AmInvest Research - 10 Nov 2022