Mah Sing entered into a SPA for a proposed acquisition of 4.63 acres of land in Mukim Petaling, Kuala Lumpur for a purchase consideration of RM90.3m. The proposed development will generate approximately RM500m worth of GDV. We are neutral on the news given that earnings contribution will spread over its development period of 5 years and contribute only from FY20 at earliest, in our opinion. We tweak our FY20 earning forecast upwards by 3% as we impute the contribution from the project. Maintain HOLD but with lower TP of RM1.00 (from RM1.10) based on 55% discount to RNAV of RM2.21.

NEWSBREAK

Mah Sing has entered into a SPA for a proposed acquisition of 6 adjoining freehold land in Mukim Petaling, Kuala Lumpur measuring 4.63 acres (201.7k sqft) for a purchase consideration of RM90.3m. The proposed development will house units with indicative built up from 700sqft comprising two to four bedrooms and generate approximately RM500m worth of GDV. The development order for the project has been obtained, therefore expediting the development process.

HLIB’s VIEW

Neutral on the news. We are neutral on the news given that earnings contribution will spread over its development period of 5 years and contribute only from FY20 at earliest, in our opinion. Based on a guided PBT margin of 18%, the effective NPV (WACC: 10%) of the project is estimated at RM46m or 2.9% of estimated RNAV.

The land. The land acquisition price of RM448psf is fair given its ability to garner a PBT margin of 18%. The land is located within a 10km radius of KLCC, Cheras, Ampang, Petaling Jaya and Seri Kembangan. Nearby highway accessibility include SILK, NPE, KESAS, KL-Seremban Expressway, Maju Expressway and SMART Tunnel. We note that the project will be located 800 metres from the upcoming Taman Naga Emas MRT Station. Surrounding amenities and facilities include notable shopping centres, schools, institutions and the Bukit Jalil National Stadium. Mah Sing is expected to maintain its net cash position post acquisition of the said land.

FY19 targets. Management has set a flat sales target of RM1.5bn, with 50% of products priced RM500k-RM700k and 31% of products priced RM701k-RM1m. Over 70% of sales target are located in the Greater KL region, followed by 19% in Johor and 11% in Penang. With regards to GDV launches, a target of RM2.2bn has been set which includes projects such as M Vertica, Sensory, Meridin East and Southbay City.

Forecast. We tweak our FY20 earning forecast upwards by 3% as we impute the contribution from the project.

Maintain HOLD with lower TP of RM1.00 (from RM1.10) based on a higher discount of 55% (from 50%) to RNAV of RM2.21, as we are cautious on Mah Sing’s near-term outlook. We expect earnings to remain relatively flat YoY, at best, with lack of catalysts in the short term coupled with flat targeted sales despite the deep discount to our estimated RNAV. On the other hand, the focus on affordable products has garnered strong response and consistent dividend with a minimum payout ratio of 40% should continue to serve as support to the share price.

Source: Hong Leong Investment Bank Research - 29 Mar 2019