MAHSING has terminated the Titiwangsa land deal worth RM60m as resolution of competing ownership claims will be long drawn. While this surprised us, it is an understandable move as MAHSING prefer to concentrate its capital on immediately developable projects. No major impact to RNAV, net gearing or earnings. Expect more land banking activities in the Klang Valley soon. Downgrade to MARKET PERFORM on recent share price performance with unchanged TP of RM1.63.

Termination of the Titiwangsa land deal. MAHSING announced that they have terminated the SPA to acquire 3.56 ac freehold residential land in Titiwangsa, KL (RM60m land cost, GDV of RM650m) due to non-fulfilment of conditions precedent during the said period. The vendor of the land shall refund the deposit of RM6m back to MAHSING. Recall that shortly after the acquisition was announced, the Titiwangsa land was faced with competing claims on the rightful ownership of the land and we gather that ascertaining ownership will be a very long drawn process.

A surprise, but an understandable move. We were surprised by the news as MAHSING had indicated they were very keen on this prime piece of land and was willing to buy it from the rightful owner. However, if the competing claims on the land drags on too long, it will tie up balance sheet commitment for the group which could be deployed on projects that are immediately developable. Since the authorities are unable to provide a timeline on when these ownership issue can be settled, MAHSING believes it is best to move on. The Titiwangsa project accounts of less than 1% of our FD SoP of RM2.85. Impact on FY17E and FY18E net gearing is also minimal as net cash position is strengthened slightly to 0.12x and 0.10x from 0.11x and 0.09x, respectively, as the land consideration was meant to be paid on a deferred basis.

Expect more land banking news, given their light balance sheet. We expect more Klang Valley mass-market driven type projects to be secured over the next 6–12 months and have built-in a GDV replenishment assumption of RM2.2b. We also believe that 2H17 launches will exceed that of 1H17. Besides continuous efforts to clear inventories/WIPs, key new launches in 2H17 include M Vertica@Cheras, M Centura@Sentul, iParc@BukitMertajam, Penang, M Aruna@Rawang while also pushing out new phases of on-going projects like Southville (Savanna 2), Southbay (M Vista) and Meridin East (Ph 2 of Fern).

No changes to earnings, as the significant contribution from Titiwangsa was only timed for FY19 onwards. Unbilled sales of RM3.02b provides more than one year’s visibility.

Maintain TP of RM1.63 based on an unchanged property RNAV discount of 48% (in-line with big-cap average) or implied SoP discount of 43% to a FD RNAV of RM2.85 due to minimal impact from the Titiwangsa land deal. While we remain optimistic of the potential land deals, we note that the share price has recently done well and thus, we downgrade our call to MARKET PERFORM from OUTPERFORM. We may review our call with an upside bias once the group is able to secure the new landbanks and launch it within 12 months of acquisition or if the share prices corrected sharply. Yield of 4.3% is above big-cap developers’ (>RM3b market cap) average yields of c. 3.0% and should offer downside support.

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 - 20 Oct 2017