THE BUZZ
Yesterday Mah Sing announced on Bursa Malaysia that itswholly-owned subsidiary, Capitol Avenue Development SB (Capitol Avenue), had on26 March 2012, entered into a Joint Development Agreement (JDA) with PaduanHebat SB (PHSB) for the proposed joint development of 4.26 acres of prime leasehold commercial land known as Lot 37, Harbour City KotaKinabalu. Under the terms of the agreement, Paduan Hebat and CapitolAvenue will jointly develop the Land for an entitlementof RM39m, or approximately RM210 psf.
OUR TAKE
The deal at a glance.Under the JDA, PHSB will provide the development land while Mah Sing will provide the expertise and financing for the development. The total considerationpayable by Mah Sing for being allowed to develop on the property is RM39m, orRM210psf, with 64% or RM25m payable in cash in 4 tranches over an estimatedminimum period of 9 months, while the balance RM14m is to be paid in kind (fromunits in the development). Mah Sing has also been given the option of jointly developing anadditional 2 lots totalling 4.408 acres, exercisable within 6 months of the saidagreement at a cost of RM216 psf, or about RM41.5m. The land, locateddiagonally opposite Sutera Harbour and near KK Times Square, is 3.9km from KotaKinabalu International Airport and about 1.1km to the CBD.
Another milestone.This JDA marks Mah Sing's foray intoSabah as well as East Malaysia. We view this move positively as we believe there is strongpotential and demand for high quality commercial and residential properties inKota Kinabalu and Sabah in general. As one of the top leisure destinations in Malaysia, we believe Mah Sing should beable to leverage on Kota Kinabalu's international appeal among local or foreigninvestors. Given the state's vibrant economic landscape and its wealth ofnatural resources including oil palm, timber and oil and gas, Mah Sing shouldbe able to tap into the burgeoning demand for properties with modern designs inKota Kinabalu's CBD from the 800,000-strong population in the city and the surrounding cities of Penampang, Tuaran andKota Belud. Tentatively called Sutera Avenue, the proposed joint developmentcomprises multi-storey shop offices fronting the Coastal Highway, which willbe complemented by street mall retaillots as well as serviced apartments. Thecompany is targeting to commence registration of interest for the developmentin 3Q12 and expects to start construction in 1HFY13. Based on the preliminaryplan, the project is estimated to have a total GDV of RM360m. Including theoption land, the total GDV is estimated at about RM830m.
Maintain BUY. Wemaintain our forecast and Buy recommendation on Mah Sing, at an unchanged FV ofRM2.69, based on a 20% discount to its RNAV. The stock's relatively inexpensivevaluation makes it an attractive value proposition, especially for investors seeking cheaper exposure among mid-sized property counters.