Proposed JV development of 8.5 ac freehold land in Sentul where MAHSING has a 78% stake. Land cost of RM150m is fair with minimal impact on balance sheet. The project has a GDV of RM1.3b and will feature affordable service apartments, which we view positively as it is saleable. Negatively, the Titiwangsa land deal is facing competing claims. No changes to earnings. Slightly higher TP of RM1.67. Maintain OUTPERFORM.

Second landbanking announcement this year, following the Tititwangsa land acquisition. MAHSING has entered into a Share Sale Agreement (SSA) with the vendor (LTS Properties (M) S/B, T.S. Law Corp S/B and Law Wai Cheong) to acquire 78% in Cosmowealth Housing Development S/B (CHD) for RM55.0m and payment will be deferred over 72 months. In turn, CHD had entered into a SPA to acquire 8.50 ac freehold land in Sentul for a total consideration of RM95.1m (payment within 6 months with automatic 2 months extension). This implies a land cost of RM150m (RM405psf). The land fronts Jalan Sentul Pasar and is zoned for mixed development. This matured area enjoys LRT stations (Sentul Timur, Sentul) and KTM stations (Sentul, Kampung Baru, Batu Kentomen) between 2.4- 4.2km away. This is not a surprise as the group had beefed up its balance sheet with the recent RM650m perpetual bond issuance and post-acquisition, FY17E net cash will be at 0.09x (from 0.10x).

Estimated GDV of RM1.3b which will feature affordable service apartments (650, 850, 1000sf built-up) with prices starting from RM326k/unit. This implies a land cost-to-GDV ratio of 11.5%, which is fair and should yield gross margins of 25%-30%. Project launch is likely in 2H17 with 4-5 years development period. Earlier, we had built in RM1.35b worth of GDV replenishments (100% stake) into our FD SOP of RM2.79, which would not be materially different than the impact of this Sentul JV project (1% of FD RNAV). We are positive on the deal given that portions of the land payment is deferred while it is a saleable project being an affordable housing play with strong connectivity in KL.

No changes to earnings. Although the project will be launched towards 2H17, we conservatively maintain our FY17-18E sales at RM1.80b each.

Titiwangsa land faces hiccups. Separately, the recent land acquisition is facing competing claims on the rightful ownership of the land and now the company and its legal counsel are in the process of verifying the claims. There is no timeline given as to when this will be settled; if the claims hold true, the land deal may fall through. Note that the project makes up 2 sen of our FD RNAV. We believe investors may perceive this negatively as the group has had several land deals fall through in the past. Taking into account the risks from the Titiwangsa land, we only built in an additional RM700m worth of GDV replenishments in our FD RNAV, which would marginally up our FD RNAV by 1 sen to RM2.80 (refer overleaf).

Slightly higher TP of RM1.67 (RM1.66 previously) based on an unchanged property RNAV discount of 48% (in-line with big-cap average) or implied SOP discount of 40% to our higher FD RNAV of RM2.80. 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 - 29 May 2017