MAHSING announced two new land deals (in Cheras and Penang) at a total cost of RM307.3m and combined GDV of RM2.35b. Concurrently, two of its older land deals (51% stake in KK Convention Centre, SSAAS land) will not be pursued further. There is minimal financial impact as our FD SoP is unchanged, but we are medium-term positive on these announcements as it helps MAHSING to realize its sales targets. Maintain OUTPERFORM and TP of RM1.67.

Two new land deals. MAHSING announced the acquisitions of: (i) 11.23ac leasehold mixed development land in Cheras for RM263.5m (deferred payment over 2-3 years period) via Cordova Land S/B from DBKL, and (ii) 10.89ac freehold commercial/industrial land in Bukit Mertajam, mainland Penang, which is readily developable, for RM43.8m from Waz Lian Properties S/B. The estimated Cheras land GDV is RM2.2b (affordable housing) while the Penang land is at RM150m (light industrial park). The land costs appear decent-to-fair based on our analysis. We like these acquisitions as such products are in current demand. (Refer overleaf).

…but another two old land deals out. The group also announced the disposal of their 51% stake in the Kota Kinabalu Convention Centre (KKCC) JV development and termination of the Sultan Salahuddin Abdul Aziz Shah Golf Course (SSAAS) land. Overall, we see the loss of KKCC and SSAAS land deals as a blessing in disguise as the market is fairly soft in KK, Sabah while the very high-end residential market segment of SSAAS may require longer gestation periods. (Refer overleaf).

Neutral impact, but positive in the medium term. In total, the group has lost an effective GDV of RM3.07b while replenishing another RM2.35b from the Cheras and Penang land acquisition, implying a net GDV loss of RM0.72b However, we are also assuming a GDV replenishment rate of RM0.70b, which results in no changes to our FD SoP of RM2.80 (note that we are still including the Titiwangsa land deal in our valuations). Meanwhile, the net impact of the land deals on its balance sheet is minimal with FY17-18E net cash position at 0.11-0.10x (0.09-0.09x previously). Although the financial impact is largely neutral, we are medium-term positive on the announcement because it increases the odds of MAHSING meeting its sales targets in a challenging environment.

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

Expect more land banking news, given their light balance sheet. We expect more Klang Valley mass-market driven type projects to be secured. We are also waiting for the Titiwangsa land deal issues to be cleared up. Other than that, the Sentul land and the newly announced ones, there are no other pending deals. The group intends to deliver VP on RM637m (+22% YoY) worth of projects in FY17.

Maintain TP of RM1.67 based on a property RNAV discount of 48% (in-line with big-cap average) or implied SoP discount of 40% to our FD RNAV of RM2.80. We expect more land banking news over the next 6- 12 months. In the meantime, the company offers a dividend yield of 4.1%, which is above big-cap developers’ average yield of 2.9%. Reiterate OUTPERFORM.

Risks include: (i) weaker-than-expected property sales, (ii) margin issues, (iii) negative real estate policies, and (iv) deterioration in lending environment.

Source: Kenanga Research - 04 Jul 2017