We raise our underlying assumption on the velocity MAHSING is realising its GDV following an overwhelming response to its recent launch and a boost to the marketability of its Bangi and Sepang projects on the recent wave of foreign direct investment (FDI) in Malaysia. We raise our FY24-25F net profit forecasts by 8% and 9%, respectively, lift our TP by 44% to RM1.60 (from RM1.11) and upgrade our call to OUTPERFORM from UNDERPERFORM.

We came away from a recent engagement with MAHSING feeling excited over its near-term prospects. The key highlights are as follows:

1. Another feather in the M Series’ cap. MAHSING’s latest M Series product, i.e. RM500m M Zenya in Kepong has been another thumping success with a take-up rate of 92% in less than a month after its launch in May 2024. This stretches its winning streak (i.e. achieving a take-up rate of more than 90% within a year after the launch) following M Minori (RM519m launched in Oct 2023) and M Nova (RM790m launched in Aug 2023).

With the latest success, we believe MAHSING is on track to surpass its FY24 sales target of RM2.5b (FY23 sales target: RM2.2b). To recap, MAHSING's M series products target largely first-time house buyers and upgraders in Kuala Lumpur. The key selling point is high quality products at affordable price points, typically below RM600k.

2. Strong war chest for further land acquisition. MAHSING is still on the lookout for more development land. This follows a slew of land acquisitions in the Klang Valley and Johor recently (see Exhibit 1). Funding is not an issue given its strong balance sheet with a net gearing of only 0.08x as at end-FY23.

3. Expansion of the manufacturing segment. The group extended it plastic pallet operations to Jakarta in 1QCY24 and intends to further expand within Southeast Asia, with Thailand and the Philippines specifically mentioned as next targets. The key drivers of the business are the booming regional e- commerce markets and the preference for plastic pallets over wooden ones for the former’s durability. It has plans to spin off this business within the next three years. Meanwhile, for its glove manufacturing business, it will continue to focus on high-margin medical gloves. A pick-up in orders should take the business a step closer to its breakeven point.

On a separate note, we hold the view that the market, ourselves included, has not fully appreciated and reflected the boost to the marketability of MAHSING’s land in Bangi and Sepang, following the recent wave of industrial and high-tech FDI in Malaysia, particularly: (i) Microsoft’s USD2.2b (RM10.4b) investment in cloud computing and related advanced technologies, including generative AI over four years, and (ii) Amazon Web Services’ USD6b (RM28.4b) investment in infrastructure over 14 years.

To recap, MAHSING’s Southville City in Bangi makes up 34% of its total GDV, equivalent to RM8.5b (Total GDV: RM24.0b). It is located next door to Cyberjaya and it sits on 316 acres of undeveloped land. Meanwhile, it is developing its 185-acre business park in Sepang in collaboration with an experienced Chinese partner in property and manufacturing businesses.

Forecasts. We raise our FY24-25F net profit forecasts by 8% and 9%, respectively.

Valuations. Correspondingly, we lift our TP by 44% to RM1.60 (see Exhibit 2) from RM1.11 as we lower our discount to its RNAV to 40% (from 50%) to reflect the higher velocity MAHSING is realising its GDV. The lower discount to RNAV we accord to MAHSING vs. 55% for the sector is to factor in MAHSING’s fast turnaround business model. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 6).

We like MAHSING for: (i) its lifestyle-focused products providing ease of entry for first-time house buyers, (ii) its efficient and highly regarded land bank management and fast turnaround time which minimises carrying costs, and (iii) its low net gearing of only 0.08x as at end-FY23, enabling it to gear up significantly to acquire new landbanks as and when opportunities arise.Upgrade to OUTPERFORM from UNDERPERFORM.

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 - 15 May 2024