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19.18ac freehold industrial land acquired in HICOM Industrial Estate, Shah Alam, making it Mah Sing Group’s (MSGB) first acquisition for the year and the 6th local landbank purchase in the last six months. The land was acquired from Quill Industrial Properties Sdn Bhd for a purchase consideration of RM45.5 million. Pricing is fair at RM54.45 psf since neighbouring freehold industrial land ranges between RM55 psf – RM60 psf. (See payment terms below).
* Excellent connectivity via direct access to KESAS highway. The site enjoys quick access to Port Klang, NKVE and Elite, which would appeal to the many industrial players wanting to ease logistical distance/costs. Surrounding the Hicom Industrial Estate are the UEP Industrial Park, Subang Utama Industrial Park and Subang Business Center. It is also surrounded by MNCs (e.g. Fujitsu, Hicom Yamaha) and large local operations (e.g. Proton).
* iParc 2 @ Shah Alam to fetch RM143 million GDV (three-year development). MSGB expects to launch similar products to iParc, comprising of 3-storey semi-detached factories with flexible layouts. Built-up per unit are c.5,400 sq ft with pricings from RM2.5 million onwards (RM463 psf). Surrounding factories are long established and mainly with >10,000 sq ft built ups, so price comparables are not available. Although GDP margins could be <25% vs. its group gross margin of 31%, it is a quick-turnaround project providing quicker earnings recognition, recovery of land costs and better cash flow. Project launch is targeted for 2H10, pending development approvals.
* Replicating success. Recall MSGB acquired an industrial land in September 2009 in
Bukit Jelutong to launch RM100 million GDV industrial project, named iParc. It was launched in early January 2010 and iParc has garnered 95% take-up rate to date. Since it was well received, MSGB increased the selling prices resulting in a 11% higher GDV of RM111 million. Given the location of IParc 2, we believe MSGB could price it even higher
* Maintain FY09-10E net profit of RM91.1 million-RM93.1 million. We will factor iParc 2 earnings when launch dates are firmed; earliest significant earnings contribution will be felt from FY11 onwards. Assuming similar sales trends to iParc, Bukit Jelutong, and 40% completion at FYE11, iParc 2 could raise FY11E net profit up by 22% to RM146 million.
* Reiterating BUY with unchanged fair value of RM2.10 (RM1.75 ex-bonus), based on FD SoP RNAV, as we value iParc 2 land at purchase price. At current prices, 12x FY10E PER is attractive vs. historical 14x. Dividend yield of >4% is attractive vs. peer’s 2%-3%. Near term catalysts lies with improved liquidity from bonus issue/placements and finalization of its Changzhou, China project.
Other points
Funding will be a mixture of internally and externally generated funds, although D:E mix has yet to be determined. Nonetheless, MSGB has appetite for these acquisitions given its strong balance sheet (0.18x net gearing, RM120 million cash balance). We expect MSGB to be in a net cash position with some RM400 million cash pile by Dec 31, 2009, due to RM227 million cash inflow from East Wing of The Icon, Jalan Tun Razak. Additionally, MSGB’s quick-turnaround business model ensures quicker cash generation to enable funding of its acquisitions. MSGB has successfully secured en bloc sales for Southgate amounting to RM289 million over 2H09.
