A good start for Mah Sing

Mah Sing Group Bhd (May 29, RM1.99)
Maintain hold at RM1.98 with revised target price of RM1.83 (from RM1.77):
Mah Sing's reported 1QFY12 net profit of RM59.9 million came in above expectation, accounting for 27% to 29% of our and consensus estimates. YTD, locked in sales of RM1 billion make up 40% of its RM2.5 billion target for 2012.

Mah Sing's move into township development in a big way is a positive, as the more resilient sales will help to cushion the slowdown in its high-rise projects. We raise our earnings forecasts by 2% to 7%. Our target price is raised to RM1.83 (+6 sen; 40% discount to realisable net asset value [RNAV]).

Net profit for 1Q grew by 45.5% y-o-y. The underlying y-o-y earnings strength was mainly driven by property development (+54% y-o-y), offsetting the decline in earnings from the plastics division (11% of total revenue; -39% y-o-y). Overall earnings before interest and tax (Ebit) margin remained fairly stable at 18.2% (-0.5 percentage points y-o-y, +5.9 pps q-o-q).

Residential projects are the key drivers for Mah Sing. They include: (i) Kinrara Residence (RM433 million in remaining gross development value); (ii) M City (RM983 million); and (iii) M Residence (RM81 million). As at March 2012, Mah Sing's unbilled sales remained healthy at RM2.5 billion or 1.6 times our 2012 forecast.

The management remains confident of achieving its RM2.5 billion target. This is supported by RM2.1 billion in new launches, including the recently acquired Southville City (RM2.15 billion). To recap, Mah Sing recently acquired a 166.7ha parcel of land in Bangi, Selangor, for the development of mass market housing (Southville City). Phase 1 of the project will consist mainly of double storey terraces (20x70, 24x80) priced from RM530,000 per unit onwards. It is slated to be launched by 1H13.

We raise our FY12 and FY13 earnings forecasts by 2% to 7% to factor in changes in take-up and progress billings assumptions for M Residence due to the overwhelming response. Phases 1 and 2 of M Residence are 95% and 76% sold respectively, and Mah Sing is currently previewing its Phase 3 (superlink homes from RM582,800 onwards). Consequently, we raise our RNAV estimate by six sen to RM3.05. — Maybank IB Research, May 29

This story appeared in
The Edge Financial Daily on May 30, 2012.

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