Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with an unchanged SOP-based fair value of RM0.86/share, which incorporates a neutral 3-star ESG rating (Exhibits 3 & 4). This implies an FY23F PE of 12x, at parity to the average of larger cap property stocks currently.

• Mah Sing kicked off its first land deal in 2023 with a proposed acquisition of 2 parcels of leasehold land totaling 8 acres in Pekan Puchong Perdana, Daerah Petaling, Selangor, from Millennium Acres for RM86mil cash. Both parcels of land are adjacent to each other (Exhibits 1 and 2) with the purchase consideration expected to be fully settled by 2HFY23.

• While maintaining our FY23F earnings, we raise FY24F core net profit by 1% to factor in earnings contribution from the new project, M Terra.

• The higher earnings is based on the assumption that the acquisition will be mainly funded internally with Mah Sing’s cash of RM500mil as at 30 Sep 2022. Hence, we anticipate the impact on gross gearing ratio from the acquisition to be minimal.

• Based on our channel checks, the asking price for commercial lands surrounding Puchong Perdana ranges from RM220 psf to RM350 psf. Hence, we deem the acquisition price to be fair.

• The estimated combined gross development value (GDV) of the new development to be named M Terra (for Parcel 1) and M Hana (for Parcel 2) amounts to RM726mil (Exhibit 2).

• The acquisition price translates to RM240 psf and implies a cost-to-GDV ratio of 12%, which is within the average land cost-to-GDV ratio of 12%–15% for the group’s overall projects.

• Both projects could potentially contribute up to 5% of Mah Sing’s earnings from FY24F to FY29F with M Terra scheduled to debut in 2HFY23.

• M Terra will be a residential development with 2-bedroom and 3-bedroom units, with indicative built-ups of 552 sq ft, 769 sq ft and 1,005 sq ft. The starting price will be RM250K (RM453 psf), with first-time home buyers and upgraders as the target market.

• M Terra is scheduled for registration of interest and launching in 2HFY23.

• Meanwhile, M Hana is planned as a mixed-use development which comprises residential units and retail lots. We are waiting for further clarity on the project's specifications.

• The lands are located at Puchong, which is a densely populated area with >500K population. They are also well connected to matured neighbourhoods like Bandar Puteri Puchong, Bandar Bukit Puchong, Bandar Puchong Jaya, Bandar Saujana Puchong, Taipan Business Centre, Subang USJ, Putra Heights and Kota Kemuning. Their strategic location provides a large catchment of potential buyers to both projects.

• Overall, we are positive on the acquisition which will help sustain Mah Sing’s property earnings over the medium term. The stock currently trades at a compelling FY23F PE of 8x vs 3-year average of 11x and offers decent dividend yields of 6%.

Source: AmInvest Research - 19 Jan 2023