News Recall that on 1st Oct, MAHSING proposed the acquisition of 31 pieces of adjoining 1,351.8-acre of freehold land in Pasir Gudang, Johor through its wholly owned subsidiary SanJung Tropika Development. On a new note, the company announced it has now entered into a supplemental agreement with Bisari Land (the vendor) to amend certain provision, terms and conditions of the SPA. The earlier total consideration of RM429.8m or RM7.30psf has been revised down by about 4% to RM411.2m or RM6.98psf. However, the payment, which was supposed to be paid in 4 tranches over a period of 48 months, is shortened to 5 tranches over a period of 24 months, subject to fulfillment of landowners’ obligations.

CommentsWe are neutral on the variation as the acquisition of the land is still being offered at favourable pricing. However, due of the shorter payment term of two years, it would increase the FY14E net gearing from 0.47x to 0.55x. We also understand from the management that they will launch the first phase in 1Q14 to improve the cash flow. No changes to the estimated GDV of RM5b with an unchanged GP margin assumption of 23% as the cost saving from shorter payment term is considered minimal (which is about 0.3% to total GDV only).

To recap, this project namely Bandar Bestari Perdana will be a gated-and-guarded concept similar to Southville City in Bangi with bread and butter products; commercial (17%), industrial (22%) and residential (61%). The preliminary pricing for terraces will be from RM300k onwards.

We like that MAHSING is replenishing its mass township landbank hot on the heels of successful Johor-based developments such as Austin Perdana, Sri Pulai Perdana 2 and Sierra Perdana. The land cost is considered fair as the price of RM6.98psf is only 29% above the land cost of Sierra Perdana, which was acquired in 2005. Note that Johor land price has already surged by more than 50% in the past 2 years.

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

Given such a high net gearing, it will limit land banking opportunities unless MAHSING: (i) secures more JV projects, (ii) negotiate for longer progressive payment periods, and (iii) do a cash call. For now, they have sufficient land banks in the right growth areas to sustain their growth trajectory.

Forecast While management expects Bandar Bestari Perdana to be launch in 1Q14, we have conservatively estimate the launch to start in mid-FY14 and hence significant earnings contributions will only be felt in FY15. Therefore, there is no changes to our FY13E-14E earnings.

Rating Maintain OUTPERFORMMAHSING’s Johor exposure stood at 27.5% currently and the acquisition is timely to replenish its township development landbank. We view the Johor property market as a strong driver, which will help the group secure, if not, exceed sales targets.

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

Risks to Our CallUnable to meet sales targets or replenish landbank.

Sector risks, including negative policies.

Source: Kenanga