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? In line. Mah Sing’s 3Q10 net profit of RM29.7m (+26.2% yoy and +1.8% qoq) came in within our and consensus estimates. Key projects in Klang Valley, Penang and Johor Bahru continued to contribute to earnings. Margins remained stable from last quarter. Effective tax rate was higher due to non-tax deductible expenses and non-recognition of deferred tax assets for certain temporary differences. YTD revenue and net profit upped 79.1% and 25.3%, respectively.
? Icon Tun Razak continued to eat into bottom-line. Occupancy rate for Icon Tun Razak remained poor at about 16%, 40% committed to prospective tenants and 38% pre-committed. As a result, the company continued to incur its yield guarantee of about RM8.6m per quarter in 3Q10. Going into 2011, upon the delivery of Southgate in 2Q2011, we believe the yield guarantee on the corporate tower (currently 15% pre-leased) that was sold to Felda will post another earnings risk to Mah Sing.
? Recent land acquisitions to raise total GDV by RM2bn. Together with the 2 landbank deals early this month, Mah Sing has spent RM323.8m in total on landbank in Nov 2010, which would yield a combined GDV of RM2bn. Continue with its quick turnaround model, these projects are scheduled to be launched as soon as the landbank acquisitions are completed by 1H2011. We believe the aggressive projects launches by Mah Sing and hence the lock-in sales will support the earnings growth over the next 2-3 years. As at 3Q10, the company has secured sales of about RM1.2bn, on track to meet its internal sales target of >RM1.5bn for the year. During its presale in mid Nov, Star Avenue (Phase 1) has achieved almost 100% take-up and management has brought forward the preview of Phase 2 last weekend. Current remaining GDV and unbilled sales stood at RM9.4bn. Strong earnings from property development will hence be able to offset the negative impact of yield guarantee on the two corporate buildings mentioned above.
? Risks and concerns. The risks are: 1) regulatory risk; 2) competition from peers; and 3) country risks.
? Earnings outlook. Unchanged.
? Valuation. As we update the slightly higher unbilled sales of RM1.18bn (from RM1.17bn) as well as the enhanced GDV that Mah Sing is able to achieve for some of its projects, we revise our indicative fair value to RM2.50 (from RM2.43), based on an unchanged 10% premium to higher estimated RNAV per share of RM2.27. Maintain Outperform.
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