News

MSGB has acquired 76.38 acres of contiguous freehold land from four vendors for RM42.6m, or RM12.80 psf.

The land is located in Jawi in Seberang Prai, which is mainland Penang, and enjoys good access, being just 6.6km from the Jawi Toll on the North-South Highway and 15.6km from the Second Bridge (Error! Reference source not found.).

MSGB intends to build a township featuring affordable homes with starting prices just below RM500k. The project will be known as Southbay East, and is to be developed over a period of 3 to 4 years (GDV: RM400m).

Financial impact

Minimal FY15 earnings contribution. We understand the turnaround time will be fairly quick, circa 12-18 months, with a targeted launch in 1H FY15. However, we expect impact to FY15 earnings to be minimal in the early initial stages.

Pros / Cons

Raises Penang exposure. This deal boosts balance GDV and unbilled sales in Penang to RM3.8bn, which is 13% of its total RM28.8bn. We see MSGB’s first foray into mainland Penang as a positive development, given activity in Penang is set to pick up with the completion of the Second Bridge and numerous industrial parks in the vicinity.

Mid range pricing. Given the captive market arises from the industrial zones in Batu Kawan and Bukit Minyak, we expect the project to cater to the mass market. MSGB is guiding for prices to start from below RM500k. Our check indicates this is inline with the current asking prices for subsale terrace houses in the locality.

Struck a good deal. MSGB paid RM12.80 psf for the land parcel, which is lower than the RM18.50 psf that IJM Land paid for in Seberang Prai 6km away.

On the acquisition trail. The Jawi land brings this year’s landbanking to 6 acquisitions totaling RM9.3bn in new GDV, compared to RM7.4bn for last year. Given that net gearing has declined from 0.30x to 0.21x since 3Q12, we believe MSGB’s balance sheet should not be overly stressed, especially since the payment period for the RM42m is over a period of 18 months.

Rights issue proceeds. We understand that following these acquistions, MSGB has used up approximately half of the RM400m proceeds from its rights issue which was completed earlier this year. This was made possible by MSGB’s ability to negotiate for longer and more favourable payment terms for its land deals.

Risks

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

Forecasts

Maintained.

Rating

HOLD

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

Valuation

Maintain TP at RM2.12 (55% discount to RNAV).

Source: Hong Leong Investment Bank Research - 11 Dec 2013