Mah Sing entered into a SPA for a proposed acquisition of 5.47 acres of land in Mukim Batu, Kepong for a purchase consideration of RM94.8m. The proposed development will generate approximately RM705m worth of GDV. We are neutral on the news given that earnings contribution will spread over its development period of 4 years and contribute only from late-FY20 at earliest, in our opinion. We tweak our FY20/FY21 earning forecast upwards by 0.6%/2.5% as we impute the contribution from the project. Maintain HOLD with unchanged TP of RM1.00 based on 55% discount to RNAV of RM2.23.

NEWSBREAK

Mah Sing has entered into a SPA with JL99 Holdings for the proposed acquisition of land in Mukim Batu, Kepong measuring 5.47 acres (238k sqft) for a purchase consideration of RM94.8m. The proposed development will consist of 2 blocks of serviced apartments and generate approximately RM705m 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 4 years and contribute only from late-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 RM56m or 1% of estimated RNAV.

The land. The land acquisition price of RM398psf is fair given its ability to garner a PBT margin of 18%. The land is located 3.3km to the upcoming Metro Prima MRT2 Station, 4km from the Taman Wahyu KTM station and connected to the North South Express Highway via MRR2. The project will also enjoy the view of Bukit Lagong Forest Reserve, located close to the Forest Research Institute Malaysia (FIRM), Kepong. 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 (1QFY19 launches: RM388m).

Forecast. We tweak our FY20/FY21 earning forecast upwards by 0.6%/2.5% as we impute the contribution from the project.

Maintain HOLD with unchanged TP of RM1.00 based on an unchanged 55% discount to RNAV of RM2.23. We do not see any strong catalyst in the short term with flat new sales coupled with subdued earnings trend 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 - 24 Jul 2019