Mah Sing in aggressive expansion mode

Mah Sing Group Bhd (May 29, RM3.35)

Maintain buy at RM3.21 with a revised target price of RM3.85 (from RM3.31): Net profit for the first quarter ended March of 2013 financial year (1QFY13) was in line. We are also positive on its latest land acquisitions in Iskandar Malaysia, Johor, and the Klang Valley. We have raised our realisable net asset value (RNAV) based target price to RM3.85 (+54 sen) to include the value enhancement of these two parcels. We fine-tune our FY13 net profit forecasts by -0.2%, FY14 by +0.4% and FY15 by +8.1% to factor in these acquisitions. Potentially aggressive landbanking (plans are to raise gross development value [GDV] by RM7.2 billion to RM30 billion in 2013) could provide for more upside to our RNAV.

Mah Sing’s 1Q net profit of RM69.5 million (+16% year-on-year (y-o-y), +30% quarter-on-quarter [q-o-q]) made up 23% to 24% of our and consensus full-year estimates. The underlying earnings were strengthened by record property sales in FY12 (RM2.5 billion) and better operating margins (+2.1 percentage points [pps] y-o-y, +4.7 pps q-o-q). Mah Sing is on track to achieve its FY13 sales target of RM3 billion with locked-in sales of RM749.6 million for 1Q. Unbilled sales were RM3.6 billion (two times our FY13 revenue forecast).

Mah Sing has proposed to acquire: (i) 14.3ha freehold land in Iskandar (Meridin @ Senibong) beside Senibong Cove from Kim San Investments Sdn Bhd for RM366 million cash (or RM238 per sq ft [psf]); and (ii) 5ha in Taman Wahyu in Kuala Lumpur (Lakeville Residence) from Bun Seng Hardware Sdn Bhd for RM73 million cash (RM135 psf). Land costs will be settled over six to11 months.

We are positive on the two acquisitions given their fair pricing and strategic locations. Meridin @ Senibong (mixed development; RM708 psf average selling price [ASP]; similar concept as Meridin @ Medini) should benefit from rising demand for properties in Iskandar while Lakeview Residence (serviced apartment; RM533 psf ASP) will attract demand from property upgraders in that area.

We adjusted our earnings forecasts to factor in: (i) Meridin @ Senibong (RM4.4 billion in GDV, 25% pre-tax margin, five-year development period); (ii) Lakeville Residence (RM1.2 billion in GDV, 20% pre-tax margin, four-year development period); and (iii) increase in GDV to RM5.1 billion for the Southville City project (40%).

The acquisitions will boost Mah Sing’s total landbank and remaining GDV by 4.5% to 52%. — Maybank IB Research, May 29


This article first appeared in The Edge Financial Daily, on May 30, 2013.