CIMB Research Report: Mah Sing Group - Leader of “quick turnaround” model

Investment highlights

• Raising target to RM2.63. In view of our increasingly bullish stance on the property sector and our upgrade of the sector from Trading Buy to Overweight, we are also upgrading all developers including Mah Sing to an outright BUY. We make no change to our earnings forecast for Mah Sing but raise our target price from RM2.34 to RM2.60 after lowering the discount to the 15x target market P/E from 20% to 10%. Mah Sing deserves to trade at a narrower discount given its ability to drive sales and secure en bloc buyers even during tough times. Potential re-rating catalysts include 1) strong newsflow on landbanking exercises, 2) robust sales and accelerating earnings growth.

• 2009 a year of rebound. Despite all the problems faced by the sector including squeezed margins, poor sales for most developers, rising unemployment and the economic recession, the property sector was one of the best performing sectors last year. This was because property stocks came from a very low base, having been bashed down in 2008. Share prices also enjoyed a big rebound because the sector is considered to be cyclical and high-beta, and would benefit from the rebound of the stock market and economy. The sector, however, was dealt a temporary blow at end-Oct when the government announced a 5% RPGT that took effect on 1 Jan 2010.

• Prospects brighter in 2010. Property stocks reacted negatively to the RPGT announcement and have been languishing since then. While we were also shocked by the move, we believe that the market has overreacted. Fundamentals are looking up as 1) the economy is forecast to return to growth in 4Q09 after being mired in recession in 1Q-3Q09, 2) the stock market’s spectacular 40%+ rebound in 2009 will help strengthen confidence and sentiment on properties, and 3) affordability of properties is near its all-time best and the low interest rate regime will encourage property purchases, especially with inflation preying on some consumers’ minds.