Mah Sing 1Q FY2011 result review (MIDF Research) maintain buy; target price RM2.90

Mah Sing Group Berhad

INVESTMENT HIGHLIGHTS

•  Earnings within expectations. Mah Sing Group’s (MSGB) 1QFY11 earnings met expectations, accounting for 25% and 26% of ours and consensus full year forecasts respectively.

•  Higher earnings from higher property sales. MSGB’s revenue for 1Q11 improved by 30.8% to RM311.8m from RM238.3m recorded in the  corresponding  period  last  year.  Likewise,  earnings  jumped  by 47.6% to RM41.2m from RM27.9m recorded in 1Q10. The better top and bottom line figures were attributed to progressive recognition of
development  revenue  and  earnings  contribution  from  its  property development activities in Klang Valley, Penang and Johor Bahru.

•  Projects  continued  to  attract  demand.  Major  ongoing  projects which  contributed  to  both  its  top  and  bottom  lines  include  Kinrara Residence,  Garden  Residence,  M-Suite,  Hijauan  Residence, Residence@Southbay, Sierra Perdana, Austin Perdana, Southgate Commercial  Centre,  StarParc  Point  and  i-Parc.  MSGB’s  projects continued  to  attract  demand  due  to  their  good  locations,  attractive development concepts and branding.

•  High unbilled sales provide near-term earnings visibility. So far this year, a slew of  launches and project previews have met strong response. MSGB  achieved RM975m  sales  this  year  up  to  13 May 2011, which  is almost 49% of  its FY11 sales  target of RM2b. Near term earnings visibility is further supported by unbilled sales of circa RM1.6b as at end 1Q11. The unbilled sales figure is 70% more than the total revenue recognized from the property division in FY10.

•  GDV of 12.4b to sustain future earnings growth. MSGB’s low net gearing of 0.32x as at end 1Q11 allows it to continue its landbanking activities. The new  lands will provide a strong development pipeline for the next few years. Currently MSGB has a total of 34 projects in the Klang Valley, Penang and Johor Bahru. These projects  yield a combined remaining GDV approximately RM12.4b which can last for next 5 to 7 years.

•  Maintain  BUY  with  target  price  of  RM2.90.  Our  target  price  is derived from MSGB’s RNAV parity. Our target price also represents +1  standard  deviation  of  its  5-year  historical PER  of  14.6x  against FY11  EPS  of  20sen.  We  like  MSGB  given  its

(i)  proven  ‘quick turnaround  model’ 
(ii)  commendable  GDV  balance;  proven achievable  sales  target, 
(iii)  healthy  balance  sheet, 
(iv)  steady historical  dividend  yield  (4%-6%),  consistent  mid-teens  ROE  and one  of  the  few  developers  with  exposure  to  all  product  ranges (residential, commercial and industrial).