Mah Sing Group Bhd (May 29, RM1.56)

Maintain neutral call with a higher target price of RM1.62: Mah Sing Group Bhd has entered into an agreement with LTS Properties (M) Sdn Bhd, TS Law Corp Sdn Bhd and Law Wai Cheong to acquire 78% of the equity interest in Cosmowealth Housing Development Sdn Bhd for RM54.96 million (to be paid on deferred payment over 72 months).

Cosmowealth has entered into an agreement to acquire 8.5 acres (3.44ha) of freehold land in Sentul, Kuala Lumpur for RM95.07 million.

We gather that Mah Sing plans to develop serviced apartments with indicative built-ups of 650sq ft, 850sq ft and 1,000sq ft.

The price will be from RM326,000 and total gross development value (GDV) of the project is estimated to be RM1.3 billion. Expected launch is in the second half of 2017.

Meanwhile, the valuation works out to be RM349 per sq ft while the land cost to GDV is 9.9%. We view the acquisition price as fair as it is close to the land price in the surrounding area at above RM300 per sq ft.

The land is located 8.3km away from Kuala Lumpur City Centre and situated at the centre of matured townships such as Kepong, Taman Seri Gombak, Setapak, Segambut and Batu Caves.

We are positive on the news as we believe that the good location of the land bank and at an affordable price (from RM326,000 onwards) should translate into good take-up rates.

The land purchase is estimated to be revised net asset value (RNAV) accretive and, hence, should result in enhancement of shareholder value.

We maintain our earnings forecast for financial year 2017 (FY17) and FY18 pending the completion of the land deal and the official launch of the project.

The valuation method is unchanged based on 25% discount to RNAV. — MIDF Research, May 29

This article first appeared in The Edge Financial Daily, on May 30, 2017.

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