Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with a higher SOP-based fair value of RM0.89/share (from RM0.87/share previously) after accounting for contribution from a newly acquired Semenyih land into our RNAV calculation (Exhibit 4). No changes to our neutral 3-star ESG rating (Exhibit 5).

• The FV implies a FY24F PE of 9x, at parity to average mid-cap property stocks currently.

• Mah Sing had entered into 3 inter-conditional sale and purchase agreements with S P Setia’s wholly owned Petaling Garden to acquire several parcels of freehold land totaling 500 acres situated in Semenyih, Mukim Beranang, Daerah Ulu Langat, Selangor for RM392mil (Exhibit 1).

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

• The proposed acquisition is expected to be completed by 2QFY24. 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 0.32x from 0.22x.

• The estimated combined gross development value (GDV) of the new development to be named Glengowrie Estate amounts to RM3.3bil. Glengowrie Estate will be Mah Sing’s largest township in Klang Valley.

• Based on the preliminary plans that are subjected to authorities’ approval, Glengowrie Estate will be an integrated township comprising of double-storey landed homes, well planned amenities, and commercial lots. The indicative builtup areas for the residential homes are 20’x60’/65’/70’ and 22’x65’.

• Meanwhile, the indicative starting price for the residential property of RM446,800 (RM372 psf) is deemed to be attractive as compared to the surrounding townships, such as Eco Forest and Setia Ecohill 2 with median transacted prices of >RM650K.

• The land acquisition price translates to RM18 psf and implies a land cost-to-GDV ratio of 12%, which is lower than the industry’s average land cost-to-GDV ratio of 15%–20%.

• The asking price for lands surrounding the Semenyih land ranges from RM15 psf to RM35 psf (Exhibit 2). Hence, we deem the acquisition price to be fair.

• The project is scheduled to debut in 3QFY24F and to be developed over a span of 8-10 years. We estimate a negligible contribution in FY24F/FY25F with a gradual increase to 10% of Mah Sing’s earnings from FY27F to FY32F.

• The lands are situated in Semenyih, Selangor, one of the fastest growing areas in Greater Kuala Lumpur and the Klang Valley's southern corridor. Glengowrie Estate is aimed at drawing prospective buyers from Semenyih, Kajang, Seri Kembangan, Bangi and Seremban who are looking for more affordable alternatives away from the congested Kuala Lumpur city, as well as those looking for countryside living with ready amenities and infrastructure.

• Given its fair acquisition price and the product’s affordability, we are positive on the acquisition which will help sustain Mah Sing’s property development earnings over the medium term.

• The stock currently trades at a bargain FY24F PE of only 7x vs. its 4-year average of 11x and offers an attractive dividend yield of 6%.

Source: AmInvest Research - 20 Jun 2023