- We maintain our BUY call on Mah Sing Group with a lower fair value of RM2.12/share (from RM2.38/share previously) on an unchanged 15% discount to its NAV. The lower fair value reflects:- (i) the exclusion of potential contributions from the Puchong land (GDV: RM9bil) following the rescission of its SPA; and (ii) lower FY15F sales guidance.

- Mah Sing’s 1H15 results were in line. Net profit was up 11% YoY on higher work progress and sales for some of its key ongoing projects (e.g. Icon City PJ, M City and Southville). Property margins were marginally lower YoY at 16.4% (1H14: 17.9%). Some provisions were made upfront in relation to the GST impact for commercial properties purchased before 1 April, and will be progressively recognised over the next three quarters.

- Management believes the property market sentiment has been dented by an unprecedented shift in global macro conditions amid a weakening ringgit. For the first seven months of 2015, the group generated new property sales of RM1.1bil (1H15: RM961mil).

- Against a more challenging backdrop, Mah SIng has lowered its presales target for FY15F (from RM3.4bil to RM2bil). Similarly, its new sales target has also been cut by one third to RM2.3bil (ours: RM2.2bil). Accordingly, our FY16F/17F net profit forecast is cut by 9%/5% (FY15F: 3%).

- Just after it called off a proposed deal to acquire land in Seremban earlier this month, Mah Sing rescinded the SPA to acquire an 88-acre tract of land in Puchong.

- Given the volatile market conditions, management felt it would be more prudent to not proceed with the land purchase as certain terms were still uncertain (e.g. conversion status, plot ratio). Impact on P&L is minimal and confined to 1% of the SPA value (~RM7mil) that Mah Sing has to forfeit for the Puchong land. It will also be seeking a refund of the 10% deposit paid for the Seremban land (~RM36mil).

- While we estimate Mah Sing’s total remaining GDV to have shrunk by ~39% to RM26bil following the exclusion of the Seremban and Puchong lands, it is still sizeable. Instead, the immediate focus is on existing projects that are doing well (e.g. Southville), while preserving its cash base.

- Mah Sing successfully raised some RM1.2bil via a rights issue and perpetual sukuk that was completed in 1Q15. Some RM370mil out of the RM630mil rights issue can now be re-channeled for NAV-accretive landbanking moves or to accelerate existing development projects.

- While presales momentum will likely be muted in the near term, earnings visibility remains solid with unbilled sales of RM4.8bil (~2x its FY14 property revenue). Plus, the stock is trading at a steep 41% discount to its NAV.

Source: AmeSecurities Research - 27 Aug 2015