Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with a higher SOP-based fair value of RM0.90/share (from RM0.89/share previously) after accounting for the contribution from M Zenya into our RNAV calculation (Exhibit 5). No changes to our neutral 3-star ESG rating (Exhibit 6).

• The FV implies a FY24F PE of 10x, close to the PE of average mid-cap property stocks of 9x currently.

• Mah Sing’s wholly-owned Star Residence, as a developer, has entered into a joint venture agreement (JVA) with landowner, Liberty Triangle, to undertake a development of 2 pieces of leasehold land totaling 5 acres, situated in Kepong, Mukim Batu, Kuala Lumpur (Exhibit 1).

• The lands come with the benefit of approved development order (DO) with plot ratio of 1:6. Mah Sing will be submitting the revised development plan to relevant authorities for approval. Nevertheless, we believe there will be no material amendments to the existing DO.

• While maintaining FY23F earnings, we raise our FY24F/FY25F core net profit by 1%/3% to factor in the earnings contribution from the new project, M Zenya, a mixed residential development on the land.

• The estimated gross development value (GDV) of M Zenya amounts to RM500mil. The project will be developed over a span of 4 years. We estimate a negligible FY24F contribution with a gradual increase to 4% of Mah Sing’s earnings in FY27F.

• Under the JVA, Star Residence is required to make a fixed payment of RM85mil to Liberty Triangle, including the landowner’s entitlement of RM70mil and a fixed guaranteed return of RM15mil.

• The payment is structured to be deferred and staggered, with the landowner's entitlement due within 18 months from the JVA date (Exhibit 3). The fixed guaranteed return is based on profit before tax of the proposed development after the issuance of vacant possession for 75% of all the development units. This will also be affected by when the funds are allowed to be withdrawn from the Housing Development Account and the loan/financing for the project have been fully paid off. As such, the fixed guaranteed return is expected to be paid in FY28F.

• In view that there were no additional profit-sharing components outlined in the JVA, we consider the fixed payment of RM85mil as the land cost for the project.

• Assuming the JV consideration to be the land cost, the land price translates to RM401 psf and implies a land cost-toGDV ratio of 17%, which is within the industry’s average land cost-to-GDV ratio of 15%-20%.

• We deem the land to be reasonably priced, drawing a comparison to Mah Sing’s acquisition of nearby land in 2019 for the development of M Luna, which was priced at a similar rate of RM398 psf (Exhibit 2).

• We assume the JV consideration of RM85mil to be mainly funded by cash (80%) with the remainder in borrowings (20%) given Mah Sing’s strong cash position of RM901mil as at 22 June 2023. Following the completion of payment for landowner’s entitlement, we expect the group’s FY24F net gearing ratio to increase slightly to 0.33x from 0.32x.

• Based on the preliminary plans that are subjected to authorities’ approval, M Zenya will be a mixed residential development comprising of 2/3/4-bedroom residential units, as well as commercial or retail lots. The indicative builtup areas for the residential homes are 718 sq ft to 1,067 sq ft.

• The indicative starting price for the residential property of RM420,000 (RM585 psf) is appealing when compared to UEM Sunrise’s upcoming launch of Residensi Zig in Kiara Bay, which is priced in the range of RM600 psf-RM650 psf.

• M Zenya's key selling point lies in its direct view and access to the Kepong Metropolitan Lake, offering residents a lakeside living experience. As M Zenya is one of the last remaining plots of development land surrounding the Kepong Metropolitan Lake, we anticipate robust demand for the project, as seen from the strong interest in the surrounding projects such as Mizumi Residences (fully sold) and Residensi Ava (98% sold), underscoring the high level of buyer enthusiasm in the area.

• M Zenya marks Mah Sing’s fourth project in the vibrant Kepong area. Notably, Mah Sing’s Lakeville Residence, launched in 2014, and M Luna in 2020, have both been fully sold out. Furthermore, its third project in Kepong, M Nova has garnered an overwhelming response, with >9,000 registration of interests received for the 1,248 units available in phase 1.

• M Zenya is expected to open for registration of interest in 2HFY23, with the project anticipated to be launched during the same period.

• We consider the proposed joint venture to be timely and strategic, presenting an opportunity for Mah Sing to strengthen its presence in Kepong and capitalise on spill-over demand generated by the group’s existing projects. As such, we are positive on the JVA 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 - 7 Jul 2023