MAHSING announced the acquisition of a piece of land measuring 4.52 acres in Wangsa Melawati costing RM62.0m. This marks its third land acquisition this year. With GDV of RM378.0m, this project targets the affordable housing segment, which has seen encouraging momentum of late. We are optimistic on this project and maintain our OP call with an unchanged TP of RM1.05.

Third land bank replenishment for the year. An SPA was entered into with KLFA Properties S/B to acquire 4.52 acres of leasehold land with approved DO in Wangsa Melawati for RM62.0m. The acquisition cost works out to RM13.7m per acre or just under RM315psf. Well located in a matured area surrounded by 8 public schools, and 6 malls in Setapak. The acquisition cost works out with a land cost to GDV ratio of c.16%, which we deem is fair considering that the land has approved development order. We were not surprised with the news as we have anticipated for MAHSING to be active in landbanking activities.

Estimated GDV of RM378.0m. We gather that the land already has its development order (DO) in place for two blocks of service-apartments. Named M Adora, it will be positioned similiarly to Mah Sing’s previous successful launches in the likes of M Luna, M Vertica and M Centura. At a land cost-to-GDV ratio of c.16%, it should yield mid-to-high teens pre-tax margins by our estimates, in-line with the group’s average pre tax margins. Post-acquisition, we expect FY19 net cash position to narrow down to 0.09x (from 0.10x).

Focusing on affordability is key to this project’s success. The right pricing strategy for this affordable mid-market segment gives us confidence of the project’s success. At the expected average selling price psf of c.RM550.0psf, the smallest unit (at ~850sf) at M Adora would sell from RM468.0k onwards – a figure well within the acceptable range of Klang Valley’s affordable mid-market home seeker.

No changes to earnings, as we anticipate the official launch to take place in 2020 and it has been factored into our FY20 sales estimates of RM1.5b.

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’s value is within our RM1.0b GDV replenishment assumption. Post-acquisition, our GDV replenishment assumption is reduced to RM0.6b (from 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 deserve 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 - 7 Aug 2019