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Mah Sing Bhd (MIDF Research) reiterate buy; target price RM1.34

Mah Sing Group Bhd
Kinrara Parcel paves entry into Puchong

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• Mah Sing Group Bhd (MSGB) entered into a Joint venture agreement with Mahajaya Bhd to jointly develop a 13.2 acre residential parcel in Kinrara, Puchong for a consideration sum of RM35.4m or RM62/psf.

• The JV land comprises of 180 vacant lots, of which 53 units have been sold valued at RM29.0m, with another 17 units of new bookings made. Plans for the new development comprises of 2 & 2-1/2 storey terrace houses. Land is adjacent to matured residential area Taman Damai
Utama.

• The premium paid for the parcel (+25%) is justified as MSGB is i) buying into an on-going development (infra works commenced), ii) land title has obtained sub-division approvals, iii) capture of locked-in sales and iv) savings on initial development costs.. In addition, the payable sum will be paid over a tenure of 12months, preserving balance sheet management.

• Reiterate BUY with unchanged TP of RM1.94. Maintain FY10/11 earnings forecast pending further announcements on project’s GDV and development cost details.

Beneficial for both parties. We view the purchase positively as both parties stand to benefit from this arrangement. MSGB will share its expertise from its quick-turnaround model while leveraging on Mahajaya’s land supply. This will signal MSGB’s first foray into the matured yet rising demand from the Puchong market. Nevertheless, we are not discounting the possibility of further venturing within the similar vicinity for future development.

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Maintain BUY with unchanged TP of RM1.94. Our TP is derived from the group’s RNAV parity. Based on our back-of-the-envelope analysis, the project’s GDV may possibly be around RM120m. Given MSGB’s good balance sheet management, we think the group has the financial muscle and development expertise to execute the project.

Mah Sing remains our sector’s top pick given its (i) proven ‘quick turnaround model’ (ii) commendable GDV balance; proven achievable sales, (iii) healthy balance sheet, (iv) steady historical dividend yield (4%-6%) and consistent mid-teens ROE (5-year average 15.7%). The group’s YTD sales remains impressive at RM516m, accounting almost 50% of its FY10 target of RM1.0b. We remain confident the groups in on-track to meet its FY10 with the future launches.


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