Mah Sing’s focus on Klang Valley, affordable project should bode well in near term

Mah Sing Group Bhd (July 4, RM1.58)

Maintain neutral with a lower target price of RM1.59: Mah Sing Group Bhd has announced its proposal to buy 11.23 acres (4.54ha) of 99-year leasehold land in Cheras, Kuala Lumpur (Batu 2.5 Jalan Cheras) for RM263 million. We gather that Mah Sing plans an integrated development with indicative price from RM450,000 per unit with built-ups of 850 sq ft and 1,000 sq ft. Potential total gross development value (GDV) of the project is up to RM2.2 billion. Land price is fair based on land cost to GDV ratio of 12%, which is within the range of recent land deals. The land is located 1.8km away from the Sunway Velocity Mall and is also only 600m from Maluri mass rapid transit (MRT) and light rail transit interchange and the Taman Pertama MRT station is only 800m away.

It has also acquired 10.89 acres of freehold development land in Bukit Mertajam, Pulau Pinang for RM43.8 million. We gather that Mah Sing plans to build shop offices and factories with a proposed GDV of RM150 million. The land is 3km to the north-west of Simpang Ampat town and it is close to established industrial parks such as Bukit Minyak Industrial Park and Permatang Tinggi Industrial Park.

Mah Sing and the vendor of the 85.43 acres of land at Sultan Salahuddin Abdul Aziz Shah Golf Course in Selangor have mutually agreed to terminate the sales and purchase agreement. We gather that the land conversion approval and consent to transfer were not fulfilled. The company believes that the termination will allow it to focus on affordably priced products (against high-end products). Mah Sing has also sold its 51% equity interest in Kota Kinabalu-based Convention City Development Sdn Bhd to Diverse Capital Sdn Bhd for RM6.6 million. The company believes that the sale allows it to refocus on the Klang Valley and Greater Kuala Lumpur.

We are “neutral” about the news as the impact on revalued net asset valuation is limited. On the positive side, management’s focus on the Klang Valley and affordable projects should bode well for sales and earnings in the near term.

We maintain our earnings estimates for both financial year ending Dec 31, 2017 (FY17E) and FY18E. The contributions from Cheras and Bukit Mertajam land are neutralised by the termination of projects in Shah Alam and Kota Kinabalu. — MIDF Research, July 4

This article first appeared in The Edge Financial Daily, on July 5, 2017.

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