News  Mah Sing (MAHSING) has proposed the acquisition of 31 pieces of adjoining freehold land totaling 1,351.8-acre in Pasir Gudang, Johor through its wholly owned subsidiary SanJung Tropika Development (“STD”) for a total consideration of RM429.8m or RM7.30psf. The payment will be paid in 4 tranches over a minimum period of 48 months, subject to fulfillment of landowners’ obligations.

 The acquisition is timely in replacing the terminated Meridin@Senibong deal. New property projects on the proposed land to be acquired will have a total GDV of RM5b, which is c.RM0.6b higher than the planned GDV for Meridin@Senibong.

Comments  We are positive on the acquisition as it is being transacted at more favourable pricing and staggered payment terms as compared to the recently terminated Meridin@Senibong. Moreover, the area provides a ready market catchment from the surrounding vicinity. Access is excellent as the land is fronting the Masai-Kong Kong main road which with linkage to the Pasir Gudang Highway and Senai-Desaru Highway.

 This project, named Bandar Bestari Perdana, will have the “gated and guarded” concept similar to its Southville City in Bangi with bread and butter products, including commercial (17%), industrial (22%) and residential (61%). Preliminary plans price the terraces from RM300k onwards.

 We like that MAHSING is replenishing its mass township landbank after its successful developments in Johor such as Austin Perdana, Sri Pulai Perdana 2 and also Sierra Perdana. Land cost is considered fair as the price of RM7.30 psf is only 35% above the land cost of Sierra Perdana, which was acquired in 2005. Land prices in Johor have surged by more than 50% in the past 2 years.

 We do not expect much change to its net gearing as this project is mainly secured to replace the Meridin @Senibong project while the longer payment terms would be less taxing on its balance-sheet.

Outlook  MAHSING’s FY13E sales target of RM3.0b will be mainly driven by Icon City @ PJ, Southville City, Southbay City@Penang, etc. while Bandar Bestari Perdana’s sales will only be felt in FY15.

Forecast  No changes to FY13E-FY14E earnings as the project will only contribute meaningfully from FY15 onwards.

Rating    Maintain OUTPERFORM

 MAHSING’s Johor exposure stood at 27.5% now and the acquisition is timely in replenishing its township development land bank in the state. We view Johor as a strong sales driver which will help MAHSING to secure, if not, exceed its sales targets.

Valuation  Maintain TP of RM2.56. Our TP is based on a 20% discount to our FD RNAV of RM3.20 (refer overleaf).

Risks to Our Call  Unable to meet sales targets or replenish landbank.

Sector risks, including negative policies.

Other Points

Net area of 1,351.8ac is part of a gross area of 1,365.9ac after deducting portions required by the relevant authority. The land is located within Bandar Bistari Perdana and we understand from the management that the vendor has already developed a small piece of land at the area before deciding to dispose the remaining portion to MAHSING with a ready master layout. Hence, it will be ready for immediate development after the land title conversion from agricultural to respective title with cost of c. RM12.9m.

Bandar Bestari Perdana GDV is RM5b with a “gated and guarded” concept similar to Southville City with bread and butter products, including commercial (17%), industrial (22%) and residential (61%). It will be an integrated “walk-friendly” township with pedestrian footpath-cum-bicycle track that connects the neighborhood. Target market is mainly the first-time home buyers and upgraders, as well as workers from two largest industrial basins in Johor – Pasir Gudang and Tanjong Langsat. The terraces will be priced from RM300k onwards based on preliminary plans. Project duration is 7 years and we expect earnings contribution to start from FY15 onwards.

Expanding township landbank in Johor. As its existing township landbank in Johor is left with GDV of RM415m, we view this latest land acquisition as a positive move to replace the terminated Meridin@Senibong. Moreover, the pricing is much cheaper than Meridin@Senibong at RM238 psf with a longer payment term compared to Meridin@Senibong. Hence, we believe the new land development will provide MAHSING with better cash flow as the payment is spread over 48 months.

FD RNAV maintained at RM3.20. As mentioned above, we have factored in Bandar Bestari Perdana to replace Meridin@Senibong’s in our forecast. Although Bandar Bestari Perdana’s GDV of RM5b is slightly higher than Meridin@ Senibong’s RM4.4b, our FD RNAV remained at RM3.20 because we have factored in a slightly lower GP margin of 23% (vs. 24%) and longer discounted period of 7 years (vs. 5 years). Hence, we are maintaining our TP at RM2.56 based on a 20% discount to the FD RNAV of RM3.20.

Source: Kenanga