Investment Highlights

• We downgrade Mah Sing to HOLD, with a lower fair value of RM1.18 (from RM1.71), based on a 40% discount to its RNAV.

• We are revising our FY18-20 earnings downwards by 32- 33% to RM246.8mil, RM255.2mil and RM267.2mil respectively in view of slower take up rate of property sale in general as a result of weak market sentiment.

• Nonetheless, we believe Mah Sing’s long term prospects to remain stable with its strategy to focus on the affordable residential is a right move due to the persistent demand for the best products within this segment, while its quick turnaround business model limits its exposure to land withholding risks, resulting in lower gearing and better cash flow management.

• At present, Mah Sing has several ongoing projects, namely Southville City@KL South, Bangi (mixed development – remaining GDV RM9,094mil), Icon City, Petaling Jaya (mixed development – remaining GDV RM1,919mil), M Centura, Sentul (high-rise residential – remaining GDV RM1,056mil), M Vertica, Cheras (high-rise residential – remaining GDV RM1,887mil) and M Aruna@Rawang (landed residential – remaining GDV RM500mil) which are located at Central region.

• In the northern region, the company launched the M Vista, Southbay@Bayan Lepas, (high rise residential - remaining GDV RM1.5bil) with price starting from RM345k in early FY18. The Ferringhi Residence 2@Batu Ferringhi, Penang (low-rise freehold resort condominium – remaining GDV RM586mil) is scheduled to be completed in year 2020. Meanwhile in the southern region, Mah Sing launched the Meridin East@Johor (Residential Township & Integrated Development – remaining GDV RM4.6bil) in early FY18 with starting price from RM450-500k.

• Currently, Mah Sing has total landbank of 2,116 acres, with GDV of RM27.1bil, provides earnings visibility and will drive the company’s growth going forward.

• We remained cautious on the property sector due to: (1) the generally still elevated home prices; (2) the low loan-to-value (LTV) offered by banks; and (3) house buyers' inability to qualify for a home mortgage due to their already high debt service ratios (DSR). In addition, the still subdued consumer sentiment against a backdrop of rising cost of living and elevated household debts is holding consumers back from committing themselves to the purchase of bigticket items like a house. However, we do see a bright spot in the affordable segment.

Source: AmInvest Research - 12 Jul 2018