As one of our top property picks for 2025, Mah Sing aligns well with our investment themes of domestic spending and economic resilience. The group’s focus on affordable housing in urban areas positions it to benefit from consistent demand, driven by a stable economic environment and supportive government initiatives aimed at low-to-medium income earners and first-time home buyers. Additionally, Mah Sing stands to gain from rising public investments in infrastructure, including transportation, utilities, and community facilities, which enhance the appeal of its wellconnected M Series housing projects. Overall, we remain positive on Mah Sing, supported by its well-defined focus on affordable housing, an agile and efficient turnaround business model, and a strategic entry into the fast-growing data centre sector to generate sustainable recurring income. Complementing these strengths is its disciplined approach to maintaining a robust and healthy balance sheet, which further enhances its financial resilience. Maintain Buy with an unchanged TP of RM2.41/share, based on SOP valuation.

Focused Strategy in Affordable Housing

We like Mah Sing’s focused strategy of delivering affordable housing to the mass market, particularly in urban areas. Targeting first-time homebuyers, the group has concentrated on properties priced below RM500k per unit, which account for 72% of its 2024 residential sales target. The M Series launches have been well received, achieving an impressive uptake rate of over 90%, thanks to their strategic locations, competitive pricing, and alignment with government initiatives supporting homeownership for middle-income buyers.

Buoyed by this robust demand, we believe Mah Sing is on track to achieve its 2024 sales target of at least RM2.5bn. As of 9M24, the group had already achieved 74% of its full-year target, with RM700mn in new launches planned for 4Q24 to maintain momentum. Looking ahead, we anticipate the 2025 sales target to exceed 2024’s, supported by a strong pipeline of new launches and active land acquisitions. The sustained success of the M Series affordable homes is expected to drive continued sales momentum into 2025, reinforcing Mah Sing’s leadership in the affordable housing segment.

Fast Turnaround Business Model

Mah Sing’s fast turnaround business model is a key driver of its success across multiple sectors. In property development, the group demonstrates exceptional speed and efficiency, launching new projects within 7 to 12 months of land acquisition. A notable example is the M Aspira project in Taman Desa, Kuala Lumpur. Mah Sing acquired the 6.17-acre land in July 2024 for RM108mn and unveiled the M Aspira Sales Gallery just four months later, in November 2024. This swift execution underscores the group’s ability to meet market demand promptly while maintaining operational excellence.

Beyond property, Mah Sing’s agility extends to other high-growth sectors. During the COVID-19 pandemic, it became one of Malaysia’s first new entrants to commence glove production, demonstrating its adaptability to shifting market conditions. The group’s dynamic approach is further evident in its entry into the data centre industry. In May 2024, Mah Sing launched the Mah Sing DC Hub@Southville City in collaboration with Bridge Data Centres (BDC). Operations are slated to begin by 2026, with plans to expand capacity to 300MW, reinforcing Mah Sing’s ability to execute strategic initiatives efficiently and capitalise on emerging opportunities.

Clearer Sky for the Glove Business

We are optimistic about the turnaround prospects for Mah Sing’s currently loss-making glove business, driven by improving demand, potential easing of raw material prices due to increased supply and lower butadiene costs, and better average selling prices, particularly in the US market. A key catalyst is the significant tariff hikes on medical glove imports from China, with rates set to increase from 7.5% to 50% in 2025 and 100% in 2026. With 90% of Mah Sing’s glove orders destined for the US, the division is well-positioned to benefit from this shift in market dynamics. During the last results briefing, management revealed that 6 out of 12 production lines, with a total annual capacity of 3.68bn pieces, are operational. Utilisation is expected to rise to 10 lines by 1Q25, further enhancing production efficiency. The division is targeting breakeven by 2Q25, contingent on ASPs surpassing USD21 per thousand pieces, up from the current level of slightly above USD20 per thousand pieces.

Data Centre Venture Is a Future Earnings Driver

In October 2024, Mah Sing strengthened its partnership with BDC by securing a second collaboration to develop data centres at Mah Sing DC Hub@Southville City. We believe this expansion reflects BDC’s confidence in securing off takers, as it requested a significant increase in capacity. The latest collaboration adds 35.68 acres and 200MW of power capacity to the initial 17.55-acre development announced in May 2024, resulting in a combined development area of 53.23 acres with a total power capacity of 300MW.

Management aims to finalise joint venture agreements and off taker contracts by 1Q25. With BDC aiming to secure hyperscale or AI data centre customers, the first phase of the data centre project is expected to commence operations by 2026. We anticipate promising earnings potential from the 300MW project, which is projected to generate approximately RM1.6bn in annual revenue based on a monthly rental rate of USD110 per kilowatt (kW). Assuming a net margin of 15%, Mah Sing’s 20% equity stake in the joint venture could yield an annual profit share of RM48.7mn, equivalent to about 23% of its FY23 core earnings. We will incorporate earnings from this venture into our model once the joint venture structure is finalised.

Healthy Balance Sheet to Fuel Future Growth

As of September 2024, Mah Sing maintains a robust balance sheet with a low net gearing of 0.22x and a strong cash position of RM747mn. This financial strength equips the group with substantial flexibility to capitalise on future opportunities, including strategic land acquisitions and its expanding data centre ventures. In 2024, the group acquired six parcels of land with a combined GDV of RM5.8bn. While actively pursuing land acquisition opportunities, management remains prudent in its land banking strategy, ensuring land costs are kept below 20% of the GDV to avoid overpaying. Including the latest acquisition, the group has presence in Malaysia’s property hot spots like Klang Valley, Johor Bahru, Penang and Kota Kinabalu. It has a total remaining land bank of 2,412 acres with a combined outstanding GDV of RM28.5bn.

Impact

Maintain earnings forecasts. The group’s latest unbilled sales of RM2.8bn will provide over 12 months of earnings visibility, or equivalent to 1.3 times the FY23 property development revenue. Our FY24/25/26 sales assumptions are RM2.6bn/RM2.8bn/RM3.0bn, respectively.

Valuation

We maintain Mah Sing as a Buy with an SOP-derived target price of RM2.41/share – see Figure 2. The group’s property and existing businesses are valued at a CY25 P/Bk ratio of 1.0x. We believe our target P/Bk is considered reasonable, especially when considering the stock's historical trading range of 0.8x-1.2x forward P/Bk during the previous upcycle in 2012-2013. For the DC segment, we have applied a 15x EV/EBITDA multiple. While typical EV/EBITDA multiples for DC operators range between 21x and 28x, we opted for a more conservative multiple to account for the longer timeline needed for full operations and the potential uncertainties during the development phase.

Key downside risks to our call include the potential impact of unexpected monetary policy tightening and rising living costs, which could weigh on Mah Sing's sales, particularly given its focus on the mass market and firsttime homebuyers. Additionally, the company’s data centre ventures face risks such as challenges in securing reliable off takers, margin pressures from intense competition, and environmental concerns associated with the high energy consumption of data centre operations.

Source: TA Research - 3 Jan 2025