Newsbreak

• Mah Sing has proposed to acquire 78% equity interest in Cosmowealth Housing Development Sdn Bhd (CHDSB) for a total purchase consideration of RM55m.
• CHDSB, in turn has proposed to acquire three pieces of adjoining land measuring 8.5 acres in Sentul for a purchase consideration of RM95.1m.
• The proposed development is a serviced residence named MCentura, with an estimated GDV of RM1.3bn over a span of 4-5 years.
• Target launch of the project is in the 2H17 with an indicative price from RM326k onwards for built-up size of 650-1000 sqft (selling price from RM502 psf) once approvals are obtained.
• The purchase is expected to be funded via a combination of bank borrowings, perpetual securities and/or internal generated fund and to be completed in 3Q17. Financial Impact
• The land price works out to be about RM129m or RM349 psf (78% of land price + equity interest). At a plot ratio of 8x, the acquisition price translates to RM56 psf of GFA and constitutes 12.7% of the estimated effective GDV.
• The effective GDV of RM1bn is expected to increase total effective remaining GDV for the group by 3.7% to RM28.2bn.
• Assuming an EBIT margin of 25%, the project?s NPV is estimated at RM110m or 2 sen per share (1.7% of our TP).

Pros/Cons

• We are mildly positive on the acquisition as the proposed development will be RNAV accretive to Mah Sing and land cost relative to GDV is competitive at 12.7%.
• The fast turnaround pocket size development is targeted at a more affordable segment and is located in a matured Sentul area. It should gain good interest as similar projects surrounding the area are doing well with good take-up.
• 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 65%) of overall remaining GDV within the next 2 to 3 years.

Risks

• Slower than expected sales; execution risks for projects.

Forecasts

• We impute this proposed development into our model, resulting in higher earnings of 3.2% and 9.0% for FY18 and FY19, respectively.

Rating

HOLD ↔

• Healthy balance sheet and 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 RM1.56 from RM1.54 (based on unchanged 35% discount on revised RNAV of RM2.41).

Source: Hong Leong Investment Bank Research - 29 May 2017