Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with an unchanged SOP-based fair value of RM0.87/share given the negligible contribution to our RNAV calculation from the newly acquired Pulai land into our RNAV calculation (Exhibit 5). No change to our neutral 3-star ESG rating (Exhibit 6).

• The FV implies a FY24F PE of 9x, at parity to the average midcap property stocks currently.

• Mah Sing has entered into a sale and purchase agreement with Amanah Raya (as the administrator for the estate of Almarhumah Tunku Zanariah Ahmad) and Mutiara Kiara Properties to acquire 2 parcels of freehold land totaling 76 acres situated in Pulai, Johor Bahru for RM76mil (Exhibit 2).

• While maintaining our FY23F earnings, we raise our FY24F/FY25F core net profit by 1% to factor in the earnings contribution from the acquired Pulai land.

• The proposed acquisition is expected to be completed in 1HFY24. We assume the acquisition to be funded by a combination of borrowings (80%) and cash (20%) based on its historical funding mix for land acquisitions. Notably, Mah Sing has cash balances of RM707mil as at 31st March 2023. Postacquisition, we expect the group’s FY24F net gearing ratio to increase to 0.22x from 0.19x.

• The estimated combined gross development value (GDV) of the new development to be named M Tiara amounts to RM480mil.

• Based on the preliminary plans that are subjected to authorities’ approval, M Tiara will be a landed residential project comprising of double storey terrace houses (with indicative built-up areas of 20’/22’x70’) and double storey cluster homes (with indicative built-up areas of 32’x70’/75’).

• The indicative starting price is RM624,800 (RM446 psf), with first-time home buyers and upgraders as the target market. This is comparable to Scientex’s recently launched landed projects in Pulai, Johor with a starting price of >RM600,000.

• The land acquisition price translates to RM23 psf and implies a land cost-to-GDV ratio of 16%, which is within the industry’s average land cost-to-GDV ratio of 15%–20%.

• Based on our channel checks, the asking price for lands surrounding the Pulai land ranges from RM23 psf to RM28 psf. Hence, we deem the acquisition price to be fair.

• As the project is scheduled to debut in 1HFY24F, we estimate a negligible contribution in FY24F/FY25F with a gradual increase to 5% of Mah Sing’s earnings by FY29F.

• The lands are located between the well-established townships in the suburbs of Iskandar Puteri, namely Mutiara Rini and Lima Kedai. They are also highly accessible via major highways and trunk roads such as Jalan Gelang Patah (0.4km), Jalan Skudai (7km), Singapore-Malaysia Second Link Expressway (10km) and North-South Expressway (11km).

• We saw a good take-up rate on Mah Sing’s earlier projects in Johor which on average ranged from 98%-100% (Exhibit 4). Given the lands’ good connectivity, ready amenities as well as Mah Sing’s solid brand presence in Johor, we are positive about the acquisition which will help sustain Mah Sing’s property segment’s earnings over the medium term.

• The stock currently trades at a bargain FY24F PE of only 6x vs. a 4-year average of 11x and offers an attractive dividend yield of 6%.

Source: AmInvest Research - 14 Jun 2023