Mah Sing Group Bhd (July 11, RM1.56)

Maintain buy with a higher fair value (FV) of RM1.71: We maintain our “buy” call on Mah Sing Group Bhd, with a higher FV of RM1.71 (from RM1.68), based on a 30% discount to its revised net asset valuation as we include potential contributions from its recently announced land acquisitions and proposed new developments on the land. We believe Mah Sing’s prospects remain positive in the current market condition. We are optimistic that its strategy of focusing on the affordable segment of the domestic property market is the right one due to persistent demand for the best products within this segment, while its quick turnaround business model limits its exposure to land withholding risks, resulting in lower gearing and better cash flow management. Equipped with a low gearing level, Mah Sing has continued its land acquisition spree in financial year 2017. Recently, it announced two land acquisitions and also terminations of two previously announced agreements, which we believe are positive for its long-term outlook.

Last Monday, Mah Sing announced that it had entered into a share sale agreement to acquire the entire equity interest in Cordova Land Sdn Bhd for a purchase consideration of RM156.3 million.

Cordova in turn is acquiring a piece of land measuring 11.23 acres (4.54ha) in Batu 2.5 Jalan Cheras, Kuala Lumpur, from the Kuala Lumpur City Hall for a purchase consideration of RM82.1 million. The total consideration of the proposal is up to RM263.5 million.

Mah Sing has also proposed to acquire a piece of freehold vacant development land in Bukit Mertajam, Penang, measuring 10.89 acres for RM43.8 million. It plans to develop an industrial park on the land under its i-Parc series, with an estimated gross development value of RM150 million.

Mah Sing also announced that it had terminated its agreement to acquire a piece of land forming part of Sultan Salahuddin Abdul Aziz Shah Golf Course in Shah Alam measuring approximately 85.43 acres for a cash consideration of RM327.4 million as some of the terms and conditions of the agreement had not been fulfilled, and an amicable settlement or alternative agreement could not be reached.

Mah Sing is also disposing of its 51% equity interest in Convention City Development Sdn Bhd for a total cash consideration of RM6.6 million due to unfulfilled obligations by the landowner of the proposed development by Convention City, which is Yayasan Sabah. — AmInvestment Bank, July 11

This article first appeared in The Edge Financial Daily, on July 12, 2017.

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