News  Proposed acquisition of 88.7ac leasehold industrial land in the CBD of Puchong for RM656.9m (RM170psf), from Huges Development S/B where payment is staggered over 4 years. The land is strategically located behind IOI Mall and enjoys strong connectivity with nearby access to major highways and LRT stations. The group also has a 4-year option to buy another neighboring 170.6ac (refer overleaf).

Comments  The project for the land is an integrated mixed development with GDV of RM9.3b over a 10-year period. This increases the group’s total GDV by 23% to RM50.3b. Phase 1 will feature affordable-range service apartments. If the MOU materializes where MAHSING buys the entire land, this would imply an additional RM16b GDV. (Refer overleaf).

 The purchase price of the land works out to be 7% of  GDV. But the land will be converted from industrial to commercial titles. We estimate that this may increase land cost by 20%; but even so, ‘land costs’ remains at only 8% of GDV. This implies very attractive average pretax margins of 30%. Since the land payment is staggered evenly over 4 years, the group will be able to fund it using borrowings and cash; we expect FY14-15E net gearing to increase to 0.40x-0.46x from our current estimates of 0.38x-0.40x. We deem this as manageable and believe that the group can replicate its previous pattern of paring down debt quickly.

 We were surprised by the acquisition as we did not expect the company to secure another sizeable piece of land, following the recent Seremban deal. We view the acquisition positively as it will be targeting the affordable market in a prime location while land cost and payment terms are attractive.

Outlook  MAHSING is confident that they will be able to quickly overcome the issues with Seremban land deal. Given the aggressive landbanking mode, we do not discount more landbanking in the near future, especially if they can secure more deferred payment terms. Results will be released tomorrow and we expect MAHSING to meet expectations.

Forecast  No changes to FY14-15E estimates as significant contributions will only be felt from FY16 onwards.

Rating Maintain OUTPERFORM

Valuation  The project will increase our FD RNAV by 14% to RM4.58. With the optional land, this would increase our RNAV to RM5.19 but we will leave that out for now until there is more concrete news. We raise our TP to RM3.05 (RM2.71 previously) based on unchanged 33% discount on our higher FD RNAV of RM4.58. The stock is trading at unwarranted trough valuations of FY14-15E PER of 10x-9x and also offers decent dividend yield of 4.5%-5.2%. With such strong landbanking news, it will be tough for the market to ignore this laggard anymore.

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

Sector risks, including additional negative policies.

OTHER POINTS

Strategic location. The land is strategically located behind IOI Mall and enjoys strong connectivity via 5 LRT stations (Kelana and Ampang Line) and highways such as LDP, KESAS, Bukit Jalil Highway, Federal Highway, N.S. Highway and MRR2. Option to buy neighboring land. We also gather that MAHSING has entered into a 4-yr MOU period where the vendor and MAHSING will negotiate to enter into another land sale agreement (price to be negotiated), JVs or other arrangements for another 170.58ac neighboring land. During this 4-years, MAHSING has the first right of refusal. However, this is likely to take some time to reach an agreement.

The project will increase MAHSING’s total GDV by 23% to RM50.3m (including unbilled sales); if the optional land is secured, this will bring their total GDV to RM66.3b. It is commendable that they are landbanking aggressively given that such news have been relatively thin this year.

Earmarked for an integrated mixed development worth GDV RM9.3b over a 10-year period. It will feature service apartments (c. 35% of GDV) while the remaining will be commercial contents (mall, SOVO, offices, hotel, shoplots, etc). The concept will be a hybrid of Lakeville Residence @Taman Wahyu as the site front s 160ac lake, and Icon City @ PJ. We gather that the first phase will likely be launched in 2H15 and will feature service apartments with a starting price of RM585k/unit onwards or an ASP RM650psf i.e. affordable range. Recent new launches in the area are going for RM700-800psf. If the option materializes where MAHSING buys the entire land, this would imply an additional RM16b GDV.

Source: Kenanga