Mah Sing Group (Kenanga Research) buy; target price RM2.48

Mah Sing Group

9M10 meets estimates

9M10 net profit of RM86.7m was within expectations, accounting for 76% each of street’s FY10E net profit of RM113.6m and our RM113.4m. Mah Sing Group (MSGB) recorded 9M10 sales of RM1.16b (+89% YoY) is on target, making up 81% of our FY10E sales estimates of RM1.43b and 77% of MSGB’s target of RM1.50b. 3Q10 sales of RM243m was 23% QoQ lower as there were less new launches this quarter and sales were mainly driven by Garden Residence, One Legenda and Johor township projects; however, this does not include booking sales arising from the well received M-Suites and Kinrara Residence.

YoY, 9M10 net profit grew 25% YoY on the back of RM1.50b launches for 9M10, which has been a hit and commenced works of new launches (e.g. Perdana Residence 2, [email protected] Jelutong, etc). We believe there were strong billings from StarParc Pt and Southgate, which have achieved almost full take-up rates and are at significant billing stages. 9M10 EBITDA margins compressed 4.8ppt YoY to 18.2% largely due to lower margin product mix (recall The [email protected] Tun Razak was near completion at end 9M09) and losses arising from rental guarantees which was offered to one tower of The [email protected] Tun Razak (occupancy rates is low).

QoQ, 3Q10 pretax profit of RM49m increased marginally by 2%. Positively, we saw property operating margins improve by 3.4ppt QoQ to 22.5% due to higher project margin mix (we believe Southgate, StarParc Point). Net gearing increased to 0.22x from 2Q10’s 0.05x due to financing raised for landbank repayment. The group acquired 10 pieces of project landbank this year amounting to RM756m. But net gearing levels are healthy and still within peer range of 0.2-0.4x, while below threshold of 0.5x.

Maintain FY10-11E net profit of RM113.4m (+20% YoY) – RM142.0m (+25% YoY). We maintain our FY10E sales estimates of RM1.43b. We are confident MSGB can achieved our estimates as we estimate RM0.3m booking sales arising Kinrara Residence and M-Suites which should be converted to SPA sales by end FY10; this does not even include sale from previous launches. Unbilled sales of RM1.18b provide over a year earnings visibility.

Fair value of RM2.48 unchanged, based on FD SoP RNAV. MSGB continues to be a favourite for its aggressive landbanking, steady and yet strong earnings growth (3-yr CAGR: 22%), quick turnaround model and better than peer’s FY10-11E dividend yields of 4.1%-5.0% vs. peers’ c.3%. We also like the company for its consistent delivery of earnings and meeting our expectations. Reiterate BUY.




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