Mah Sing Group - Acquiring 100-acre Land in Johor Bahru

Date: 
2024-04-08
Firm: 
KENANGA
Stock: 
Price Target: 
1.11
Price Call: 
SELL
Last Price: 
1.44
Upside/Downside: 
-0.33 (22.92%)

MAHSING is acquiring 100.4 acres of land in Johor Bahru for RM103.7m, to be developed into a township with an estimated GDV of RM1.5b. We believe it is paying a fair price for the land. We maintain our forecasts, TP of RM1.11 but downgrade our call to UNDERPERFORM (from OUTPERFORM) as valuations have become rich after the recent run-up in its share price.

First land purchase in FY24. MAHSING is acquiring two plots of freehold land in Mukim Pulai, Johor Bahru measuring 100.4 acres for RM103.7m (or RM23 psf). This land is located between established townships such as Mutiara Rini and Lima Kedai. The group has earmarked the land for a township development known as M Tiara 2 with a total GDV of RM1.5b. M Tiara 2 comprises double-storey terrace, with indicative built-up of 22’/24’x70’ and 34’x70’/75’ and an indicative starting price of RM772k, serviced apartment with indicative starting price of RM253K, and double-storey shops. It will start accepting registration of interest in 1QCY25.

Fair purchase price. We find the purchase price fair from: (i) a land-to- GDV perspective, and (ii) price psf standpoint. Compared against ECOWLD’s purchase of Eco Botanic 2 land back in 2019 located c.10km south from M Tiara 2, M Tiara 2’s land/GDV ratio is 7% which is lower compared to Eco Botanic 2’s land/GDV ratio of c.18% (RM1.67b GDV over land price of RM305m). Meanwhile, M Tiara 2’s RM23 psf price tag is at a discount against Eco Botanic 2’s RM35 psf purchase price (for 200 acres) given its less strategic location.

In terms of its indicative starting price; at RM772K for terraced houses and RM253K for serviced apartments, we see reasonable pricing points when compared with the listed asking prices of approximately RM600K- RM900K for terraced houses and RM300K for serviced apartments for sub-sale homes within the vicinity, as seen on property online portals.

Overall, we are slightly positive as the intended development is fairly priced with a highly sought-after address in a mature area, allowing for quick monetisation. Based on our preliminary estimates, the project could potentially add 2.0 sen to both our RNAV/share and TP for MAHSING.

Forecasts. Maintained pending the completion of the deal.

Valuations. We keep our TP of RM1.11 based on an unchanged 50% discount to RNAV, which is below the industry’s average of 60%-65%. This is to reflect its significant exposure to high-rise residential and commercial segments which are highly sought after currently. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like MAHSING for: (i) its efforts to keep its net gearing ratio in check, with a 4QFY23 reading of 0.08x being the lowest since 2QFY22’s 0.34x, (ii) lifestyle-focused products to provide ease of entry for first-time home buyers, and (iii) sound land bank management turnaround which minimises carrying costs. That said, we downgrade MAHSING to UNDERPERFORM from OUTPERFORM as valuations have become rich after the recent run-up in its share price.

Risks to our call include: (i) strong recovery in the property sector, (ii) lower mortgage rates boosting affordability, and (iii) construction costs stabilise/decline.

Source: Kenanga Research - 8 Apr 2024

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