Newsbreak

• Mah Sing has proposed to acquire 5 pieces of adjoining freehold land with a total of 3.56 acres located at Titiwangsa, Kuala Lumpur for RM60m.
• The purchase is expected to be funded via a combination of bank borrowings, perpetual securities and/or internal generated fund. The deal is expected to be completed in 3Q17 and development works will commence by then.
• Mah Sing intends to develop a residential condominium with a total estimated GDV of RM650m. Target launch of the project is by end-2017 with an indicative price from RM485k onwards for built-up size of 850 sqft (selling price of RM571 psf) once approvals are obtained. Financial Impact
• With plot ratio of 8x, the acquisition price translates to RM48.4 psf and constitutes 9.2% of the estimated GDV.
• The GDV of RM650m is expected to increase total effective remaining GDV for the group by 2.5% to RM27.2bn.
• Assuming an EBIT margin of 25%, the project?s NPV is estimated at RM76m or 2 sen per share (1.3% of our TP).

Pros/Cons

• We are positive on the land acquisition as the proposed development will be RNAV accretive to Mah Sing. Land cost relative to GDV is very competitive at only 9.2%.
• The product is targeted at a more affordable segment and should gain interest as it is strategically located just 3.7km away from KLCC, fronting the Titiwangsa Lake Garden.
• Besides, it is only 250 meters walking distance from the upcoming MRT2 (Hospital KL station) and is easily accessible via major highways such as Duke, MRR2 and Jalan Tun Razak.
• Moving forward, we expect Mah Sing to be actively replenishing its landbanks in Klang Valley as it targets to increase to 75% (from the current 62%) of overall remaining GDV within the next 2 to 3 years.
• For FY17, Mah Sing is targeting a minimum sales target of RM1.8bn on the back of RM1.9bn worth of new launches focusing on more affordable price range of products.

Risks

• Slower than expected sales; execution risks for projects.

Forecasts

• We impute this proposed development into our model, resulting in higher earnings of 6.6% and 7.2% for FY18 and FY19, respectively.

Rating

HOLD ↔

• Healthy balance sheet with low net gearing and consistent dividend yield of 4.0% based on minimum dividend payout of 40%.

Valuation

• Maintain HOLD with higher TP of RM1.54 from RM1.52 (based on unchanged 35% discount on revised RNAV of RM2.37).

Source: Hong Leong Investment Bank Research - 18 May 2017