-  Maintain BUY rating on Mah Sing Group with fair value raised from RM4.30/share to RM4.35/share. This reflects new contributions from the Kota Kinabalu Convention City (KKCC) project; raising total GDV by RM1.4bil to ~RM28bil.

-  Mah Sing’s 51%-owned unit, Convention City Development Sdn Bhd, has entered into a development agreement with Yayasan Sabah to develop an 8-acre piece of prime land within Kota Kinabalu (KK) city centre, Sabah.

-  Under the deal, Mah Sing would have exclusive rights to develop the KKCC land for RM163mil. This is to be paid on a staggered basis over 42 months. Separately, Mah Sing has entered into a SPA with Sasinma Sdn Bhd to acquire a further 1 acre adjacent to the earlier parcel for RM22mil.

-  In addition, Mah Sing has been granted with an exclusive option to develop ~6 acres of adjacent land for RM117mil. This could generate an additional RM600mil – and push overall project GDV from RM1.4bil to RM2bil. The option is exercisable within two years.

-  The total consideration for the 99-year leasehold land is RM185mil or roughly 13% of the project’s estimated GDV (15% if the option is exercised). This is inclusive of any conversion premiums required for commercial use.

-  KKCC is being positioned as an iconic waterfront development, much like what KLCC is to KL. Project components include a luxury hotel, a business hotel, hotel suites, office towers, shop offices, lifestyle retails, food & beverage outlets as well as serviced residences. Registration of interest could commence by 2H13.

-  We expect this project to be well-received: (1) It sits on prime waterfront land within the heart of KK near KK Suria Mall; (2) Ready catchment from upcoming Sabah International Convention Centre located next to it (capacity: 5,000 delegates); (3) Within striking distance from several landmarks (e.g. Hyatt Regency Hotel – 1.5km).

-  To be sure, Sutera Avenue – Mah Sing’s maiden project in KK and located just 3.5km away from KKCC – is already off to a rousing start. The shop offices and retail units have already enjoyed take-up rates of 83% and 44% respectively within few months from its launch last September. We have assumed average pre-tax margins of 20% for both Sutera Avenue and KKCC.

-  KKCC is Mah Sing’s fourth land deal for 2013 – following another two similarly NAV-accretive deals revealed on Tuesday; i.e. The Meridin@Senibong and Lakeville Residence. We expect Mah Sing’s landbanking newsflow momentum to continue in 2H13, providing more valuation support to share price. Current unbilled sales is RM3.5bil.

Source: AmSecurites