MAHSING announced its second land acquisition this year for 5.47 acres of land in Taman Metropolitan, Kepong costing RM94.7m. The project (with GDV of RM705.0m) will have similar market positioning as M Vertica and M Centura, namely affordable housing in Kuala Lumpur, which have seen encouraging momentum. Overall, we are optimistic on this project. No changes to estimates. Maintain OP with an unchanged TP of RM1.05 as well.

Second land bank replenishment for the year. MAHSING has entered into a SPA with JL99 Holdings S/B for the proposed acquisition of 5.47 acres of leasehold land in Taman Metropolitan, Kepong, for RM94.7m. The land just 200 meters from the 235.0 acres Kepong Metropolitan Park which has a 140 acres lake, is also strategically located right next to MRR2 (refer overleaf for location map). We were not surprised with the news as we have anticipated for MAHSING to be active in land banking activities. with this land purchase, we have included RM1.7b worth of GDV replenishments in our SoP valuation.

Affordable luxury with GDV of RM705.0m. We gather that the land already has its development order (DO) in place with a 7.5x plot ratio for two blocks of service apartments (M Luna). Hence, we believe that the land cost to GDV ratio of c.13% is deemed reasonable and should yield mid-to-high teens pre-tax margins, in-line with the group’s average pre-tax margins. Post-acquisition, we expect FY19 net cash position to narrow down to 0.10x (from 0.13x).

Leverage on HOC. Overall, we are optimistic on the project given that the pricing strategy and product positioning still fall within the affordable range in the Klang Valley. Based on its indicative GDV of RM705.0m and plot ratio of 7.5x, the average selling price psf for M Luna is expected at c.RM526.0 psf. We understand that its smallest unit (at ~700sf) would be priced from RM385.0k onwards, and assuming the largest built-up of 1,000sf, it would still be priced under RM550k. Furthermore, MAHSING is planning to launch the project by 4Q19, leveraging on House Ownership Campaign (HOC), which could be a sales booster as buyers could enjoy more discounts.

No changes to earnings. Nonetheless, there are no changes to our FY19E sales of RM1.52b and earnings of RM182m. Nonetheless, we are ready to review our numbers pending the status of its inventory clearing process.

Maintain OUTPERFORM. We reiterate OUTPERFORM on MAHSING with an unchanged Target Price of RM1.05, which is based on a SoP discount of 63% (-1.25SD) on its FD SoP of RM2.84. No change to our RNAV, as the project is part of our RM1.7b GDV replenishment assumption. Post-acquisition, our GDV replenishment assumption is reduced to RM1.0b. The implied SoP discount is in-line with our universe’s valuation range of (from -1.0SD to historical trough levels), while MAHSING’s quick turnaround strategy and positioning as an affordable housing player deserves the better-end of our applied discount spectrum.

Risks to our call include: (i) weaker-than-expected property sales, (ii) margin compressions, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 24 Jul 2019