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Mah Sing Group (TA Securities) buy; target price RM3.27

Mah Sing Group Berhad

Sales target of RM2bn for 2011

Mah Sing unveiled its sales target for 2011. The management is confident in achieving RM2bn sales this year, which is an extra rm500mn than the estimated RM1.5bn sales for 2010. There sales are expected to come from some carried forward sales/bookings from Kinrara Residence and M-Suite in 2010. Besides that Mah Sing has lined up several new launches this year, which will also contribute to the 2011 sales target.

For new launches, M-City(total GDV: RM920mn) is targeted for launch in 2H11 together with Feringghi Residence (total GDV: RM800mn). Icon Residence, Penang(total GDV: RM280mn) is targeted for launch in 2Q/3Q 2011. In addition, Icon City (total GDV:>3bn) will also make its presence to Mah Sing's earnings this year, albeit in a small way.

We raise our new launch assumptions higher to RM2.5bn from RM1bn for 2011. We also revise our sales assumptions to RM2.17bn from RM1.6bn previously for FY11.

Southgate reaches tail-end, replaced by Kinrara Residence

The development of Southgate, SG Besi has reached 90% completion in 4Q10 and is scheduled for handover in 1Q11. Earnings would not be distorted as the project will be replaced by Kinrara Residence. Note that Kinrara JV and Kinrara Residence have seen take up rates of 85% and 50% respectively and its set to make its maiden contributions this year.

Following the completion and handover of Southgate project, Mah Sing's leaseback and rental guaranteed agreement with Felda on the 9-storey of retail and office space will commence. Mah Sing has agreed to pay monthly rental at 8% of the building sales consideration of RM186mn (or RM 14.9mn per annum) to Felda for duration of 2 years. To-date, Mah Sing has leased out only 30% of net lettable area and this is expected to dent property margin for FY11.

The Icon [email protected] catalyst for stronger future earnings growth

The Icon [email protected] is targeted for launch this year. According to management, the project GDV has been revised higher to RM3bn from RM838mn following an amendment to the master plan to house more commercial units. We believe the increase in development value by more than RM2bn is partly due to increasing budtet for land enhancement activities to make the project business more friendly to retailers and customers.

The 19.6-acres land which is earmarked for Icon [email protected] development was acquired in 2009 at a cost of RM104.23psf. It is located in the central commercial area in PJ, where demands for commercial units are on the rise. Compring this with SP Setia's EcoCity's RM6bn GDV, which is building on a 20-acres plot featuring high-rise residential and commercial units. As such, we believe the increase in development value by more than RM2bn is workable after putting in place proper infrastructures and landscaping.

Impact

We raise our FY11-13 earnings by 23-26% to factor in higher sales assumptions. We now assume RM2.2bn sales for FY11-12 and RM2bn for FY13.

Valuation

Given the change in earnings projections, we raise our DCF valuation to RM3.27/share from Rm2.48/share previously, based on unchanged discount rate of 9.8%. Maintain Buy.

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