Proposed acquisition of 3.56 ac freehold residential land in Titiwangsa, KL for RM60m. The TOD project will be an affordable service apartment project with a GDV of RM650m and we are positive as these products are saleable. Land cost is also attractive while minimal impact to balance sheet. No changes in earnings. Expect more landbanking news this year. Maintain OUTPERFORM with higher TP of RM1.66.

Landbanking news, finally! MAHSING has entered into a conditional SPA to acquire 3.56 ac freehold residential land in Titiwangsa, KL for RM60m (RM387psf) from Saw Shiuo Shyong@Sonny Saw. The purchase consideration is conditioned on the D.O. allowing for 350 units per ac or more, else it will result in adjustments in land pricing. If all conditions are met, the deal will be completed by 4Q17 and launch will take place soon after. Note that the land is immediately developable. The land fronts the 234.75 ac Titiwangsa Lake Garden and is a Transit-Oriented Development (TOD) project being only 250m away from the Hospital KL MRT station (MRT Line 2) while being close to the Titiwangsa LRT, monorail and MRT interchange within a matured residential area.

Estimated GDV of RM650m which will feature affordable service apartments starting from 850sf or RM485k/unit. We are positive on the project because of the strong saleability of affordable housing in KL that has good connectivity plays. We also think the land-cost-to GDV ratio of 9.2% is attractive and should result in closer to 30% gross margins. Post the acquisition, MAHSING remains in a net cash position (0.10x) in FY17. The project adds 2 sen of our FD SOP to RM2.74.

Expect more landbanking news. Overall, we are not surprised by the announcement as the group had recently raised RM650m from perpetual bond, which will be partly used for its aggressive landbanking. In our last report (7/3/17), our back-of-the envelope calculations show that if 50% of the funds is used for lanbanking and assuming land financing of 70:30 debt-equity basis, there is RM500m potential funds for landbanking. This would imply a potential GDV replenishment of up to RM3.3b. Since the group has announced this first deal while the land prices have somewhat stabilized, we do expect more landbanking news to materialize.

No changes to earnings. Although the project will be launched towards 4Q17, we conservatively maintain our FY17-18E sales at RM1.80b each.

Higher TP of RM1.66 (from RM1.63). In addition to the Titiwangsa land, we built-in RM1.35b GDV replenishment assumptions which raise our FD SOP by 2% to RM2.79. Our TP is based on an unchanged property RNAV discount of 48% (in-line with big-cap average) or implied SOP discount of 40%. Further catalyst to our valuations lies with (i) if GDV replenishment for the year exceeds our target, (ii) if management is confident to achieve higher sales targets than forecasted. Maintain OUTPERFORM in-line with our sector tactical play for high-beta stocks. Risks include: (i) weaker/stronger-than-expected property sales, (ii) margin issues, (iii) changes in real estate policies, and (iv) changes in lending environments.

Source: Kenanga Research - 18 May 2017