News

MSGB has acquired 1,352 acres of freehold land from Bistari Land Sdn Bhd for RM430m, or RM7.30 psf.

The land is located between Pasir Gudang and Tg. Langsat, and is accessible from the Pasir Gudang Highway, the Coastal Highway, and the Senai-Desaru Highway.

This follows its cancelled land deal for Meridin @ Senibong on 30th Sep.

MSGB intends to build a township featuring affordable homes, as well as future commercial and industrial elements in the pipeline. Overall GDV is RM5bn.

Financial impact

FY15 earnings contribution. We understand the this will be a fast turnaround project, with the development plans for the land already approved even before the transaction. Given the marketing is expected to start in 4Q FY14, we believe earnings contribution should be able to commence in FY15.

Pros / Cons

Making up for lost landbank. We are pleased to note that MSGB has swiftly found a replacement for Senibong, which was earmarked for RM4.35bn GDV, vs. RM5bn for this new land parcel. We regard the land cost of RM7.30 psf as very reasonable vs. the RM238 psf for Senibong. Of note, the land cost makes up less than 9% of GDV.

Penetrating an underserved niche. We believe that recent projects in IDR have been too focused to high end projects, and opine that more landed bread and butter townships like SP Setia’s Bukit Indah are needed to help build up population critical mass. Therefore, we believe MSGB will do well with this market segment.

Third Singapore bridge. We also believe that the project will benefit from the proposed third bridge to Singapore, which link the Desaru and Pengerang regions to Changi.

Risks

Slower than expected sales; execution risks for projects; inability to replenish landbank.

Forecasts

We believe that earnings will be pushed back, given Senibong was expected to be earnings-accretive in FY14. Therefore, our FY14-15E earnings forecasts have been trimmed downwards by 3.8-5.4%.

Rating

HOLD

Given macro and sector headwinds, we are keeping our HOLD call on Mah Sing at this point in time.

Valuation

We factor in the replacement of Senibong with Pasir Gudang and overall our RNAV is virtually unchanged from RM4.66 to RM4.64. Therefore our TP is minutely adjusted from RM2.10 to RM2.09 (maintain 45% discount to RNAV).

Source: Hong Leong Investment Bank Research - 2 Oct 2013