We see a sweet spot in affordable homes driven by household formation, urban migration and the trend towards nuclear family (vs. extended family), on which MAHSING can capitalise with its M series products. While keeping our forecasts, we raise our TP by 25% to RM1.00 (from RM0.80) and upgrade our call to OUTPERFORM from MARKET PERFORM.

We came away from a recent engagement with MAHSING feeling reassured of its prospects. The key highlights are as follows:

1. Strong sales, on track. A solid 1HFY23 sales of RM1.2b place MAHSING well on course to meet their RM2.2b sales target, backed by healthy momentum and competitive pricing. The group has seen high demand for recent launches including M Minori, M Meridin East, and M Astra, indicating market confidence in its product offerings. Additionally, interest in upcoming projects signifies potential for consistent growth in the immediate future.

2. Affordable living with M Series. MAHSING’s strong presence in the affordable property segment is evidenced by the take-up rate of at least 90%, particularly for their M series, showcasing the strong interest in its affordable offerings. We gathered that approximately 65% of buyers are aged 35 years or younger. While they may not be ready to explore the luxury property market at the moment, its strong position in the affordable housing sector offers a promising outlook for continued growth and success in meeting the housing needs of this demographic.

3. Strategic land banking with healthy financials. 2QFY23 net gearing ratio of 0.12x underscores their healthy financial health, driven by an efficient turnaround while the group strategically increase leverage to capitalize on land banking opportunities. This flexibility is significant considering the industry's 3%-5% ROE range which MAHSING consistently outperforms (5% expected in FY23). A bright outlook is tied to the potential benefits of extending its leverage for future land acquisitions. To date, the group has a land bank of over 2k acres and GDV of RM24b.

4. Growing industrial potential. The industrial property segment is experiencing robust demand, evident in its impressive take-up rate of 90%. MAHSING’s proactive search for industrial land underscores their strategic commitment to expanding their industrial property arm. Their innovative industrial park model, in collaboration with an experienced Chinese partner in property and manufacturing, allows them to offer comprehensive solutions, including land selection, construction, and streamlined approvals. It is important to highlight that their RM2.2b sales target does not include their industrial properties, suggesting growth potential beyond its residential portfolio.

5. Manufacturing segment closely monitored. While the property segment is experiencing positive trends, smaller-scale approach to mitigate losses rather than seeking profits, is what the group is applying to its manufacturing segment. For its glove operations, the group looks to scale down on its overall output until the point where average selling prices are more favourable.

We remain cautious on the property sector due to the persistent oversupply, elevated interest rates, sustained high inflation and subsidy rationalisation that may erode spending power of certain consumer groups. However, we see a sweet spot in affordable homes, particularly those priced at RM500k and below in the Klang Valley, Johor and Penang, which are highly sought after by first-time house buyers driven by household formation, urban migration and the trend towards nuclear family (vs. extended family). We now accord a lower discount to RNAV to developers focusing on this segment (given the fast turnaround time with a significant pickup in sales post the economy reopening, which has yet to show any sign of slowing down).

Forecasts. Maintained.

However, we raise our TP by 25% to RM1.00 (from RM0.80) as we now apply a 50% discount to its RNAV (vs. 60% previously), which is lower than the average of 60% we accord to its peers with significant exposure to the high-end residential and commercial segments. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

We like MAHSING for: (i) its lifestyle-focused products providing ease of entry for first-time house buyers, (ii) its efficient land bank management and fast turnaround time which minimises carrying costs, and (iii) its low net gearing of only 0.12x as at end-2QFY23, enabling it to gear up significantly to acquire new land banks as and when opportunities arise. Upgrade to OUTPERFORM from MARKET PERFORM.

Risks to our call include: (i) persistent overhang in the high-rise segment, (ii) widening losses at its manufacturing division due to low demand and increased operating costs, and (iii) sustained elevated inflation and rising interest rates, hurting affordability.

Source: Kenanga Research - 6 Nov 2023