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Mah Sing (HLG Research) maintain buy; target price RM2.61

Land acquisition in Penang

News

•  MSGB announced the acquisition of 7 parcels of contiguous freehold residential land, measuring 61.0 acres for RM157m, or RM59 psf. We believe this is a fair price given that residential land around the Bayan Lepas area have transacted at RM200 psf previously.

The acquired land is situated close to Batu Ferringhi and less than 20km from the city centre of historic Georgetown, and will be developed into a resort style development named Ferringhi [email protected] with an estimated GDV of approximately RM800m.

Financial impact

No impact for the current financial year, as Ferringhi [email protected] will be launched only in 1H FY11.

We project 3% accretion to net profit in FY12, as profit recognition for FY11 should be minimal.

Pros / Cons

We view the acquisition favourably as it reaffirms MSGB’s land-banking capability, which is essential to its quick turnaround business model.

Acquisitions for this year now total RM3.9bn in GDV, bringing overall future GDV to RM9.4bn (inclusive of unbilled sales), and providing earnings visibility of 5-7 years.

Risks

Slower than expected sales (unlikely).

Execution risks for project management (unlikely).

Forecasts

Following this acquisition, we keep our profit forecast for FY11 unchanged and raise FY12 net profit by 3%.

Rating

BUY

We maintain our BUY call as this development reaffirms our view that MSGB is an agile niche developer who are able to consistently replenish their landbank at reasonable prices.

Valuation

We raise RNAV and target price from RM2.48 to RM2.61 per share.

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