Highlights

We met with Dato’ Steven Ng (Executive Director) and Ms. Khaw Bee Nee (GM, Corporate Finance) for some updates and came away feeling reassured about its product positioning for 2014.

RM3.6bn sales target for FY14, on back of RM4.0bn of launches. Management shared with us its product positioning for 2014. As expected, Klang Valley and Johor continue to be the mainstay, whilst Penang and Sabah are concentrated on niche projects (Figure #3).

Klang Valley will continue to be the mainstay, and is expecting contribute 60% of its sales target. We note that its key projects such as Southville @ Bangi, D’sara Sentral and Lakeville Residence are high-rise projects located in the hotspots of Klang Valley, which we believe will enjoy good takeup rates this year.

Johor: Focused on landed townships. Of its 6 residential developments in Johor, 5 of them are landed townships, with the largest and most notable being the RM5.0bn Bandar Meridin East (BME) which MSGB aims to preview in 4Q14. We believe this is a prudent move, given the challenging outlook for high rise projects in Johor. Its sole high-rise project, Meridin @ Medini has done well due to the low pricing of its units (from RM300k onwards), which leverages well on the exemption from the minimum price floor restriction for foreigners. Phase 1 is already 78% sold and MSGB has already secured an en-bloc buyer of one of the three towers in Phase 2.

Penang: Riding on the Second Bridge. Southbay City (RM1.8bn balance GDV) should benefit from its close proximity to the new bridge. Tower A of the Loft is 55% sold and MSGB could be launching Tower B this year as well.

What are the re-rating catalysts? Our conversation with management suggest it remains confident of meeting its sales target this year, as it has planned for 80% of its launches to be priced below RM700k. On the subject of GST for residential properties, it believes the extent of passthrough by developers is likely to be 3-5%, which could lead to a rush in buying by house purchasers in 2H14. On another note, management recently went on a roadshow to US/Europe and cited heightened interest from US fund managers. We view this as a potential catalyst, given its current 19% foreign shareholding is way below the May 2013 peak of 28%.

Risks

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

Forecasts

Raised by 1.2-2.6% after updating GDV of projects

Rating

HOLD

Given macro and sector headwinds, more monitoring is needed for its projects sales this year.

Valuation

Raise TP from RM2.12 to RM2.40 (20% discount to RNAV).

Source:Hong Leong Investment Bank Research- 16 May 2014