Mah Sing (RHB Research) maintain outperform; fair value RM2.33

? Projects strategically located. Mah Sing has three projects which are strategically positioned to benefit from the Government’s MRT network development. These are Star Avenue (Sg Buloh station), Icon Mont’ Kiara (Matrade station) and M Suites (Great Eastern mall station).

Apart from Star Avenue, which has not been launched, Icon Mont’ Kiara and M Suites projects are well-received thus far, with a take-up rate of 70% for Block 1 and 30% for Block 2 of Icon MK, and 75% for M Suites.

? Buying more landbank soon. Mah Sing is aggressive in its landbanking activities, which will typically enhance RNAV due to higher contribution to projects’ DCF.

Apart from the more than 100-acre piece of land that it is currently eyeing, designated for township development, it is also hunting for other land parcels, mainly concentrate in the Klang Valley area.

We believe Mah Sing is likely to seal at least one deal by the end of this year. In addition, Mah Sing has also proposed the issuance of RM325m convertible bond last month. Hence, funding will be ready for the company to source for landbank.

? Record high sales. Mah Sing exceeded its 2010 initial sales target of RM1bn within 7 months. Given the new launches in 3Q – Kinrara Residence, Icon MK, M-Suites and One Lagenda, we are confident that Mah Sing is on track to meet its revised sales target of > RM1.5bn this year.

This is at its record high since 2005, and we believe sales momentum will continue going into 2011.

? Risks and concerns. The risks include: 1) cap on loan-to-value ratio imposed by Bank Negara Malaysia; 2) higher tax bracket for real property gain tax (RPGT); 3) delays in launches and approvals; and 4) country risks.

? Earnings outlook. No change in our earnings forecasts.

? Quick turnaround model deserves a premium. Mah Sing’s shares performed as expected, and we still see values given Mah Sing’s aggressive landbanking effort and strong property sales.

The property sector as a whole will also continue to benefit under the Government’s ETP. The company’s quick turnaround model has worked well thus far.

It has successfully generated record high sales, but yet valuations are not at its record high – current FY11 P/B 1.58x vs 1.87x +2 stdev P/B.

We believe a premium over its RNAV is justifiable now, as landbank value is being realised faster, compared to the average turnaround time of other developers. As such, we impute a 10% premium on our RNAV/share estimate of RM2.11 to derive our indicative fair value of RM2.33 (upped from RM2.06).

The stock remains one of our top picks for the sector and we reiterate our Outperform rating on the stock.

? The share price of Mahsing has been trading along an uptrend line (UTL) since Jul 2008.

? When it surpassed the RM1.44 level in May 2009, the stock began a major rangebound trading from RM1.44 to RM1.64 in most of the periods until a convincing removal of the resistance level at RM1.64 in Jun 2010.
? Thereafter, the stock headed for a retest of RM1.80 in Jul, and following rounds of volatile sessions, it finally conquered the RM1.80 level in late Sep 2010.

? The stock hit the RM1.95 higher level recently and triggered a series of profit-taking activities. It closed yesterday at RM1.90, just above the 10-day SMA of RM1.89.

? Closed with a small “hammer” candle with a  rebound from below the 10-day SMA, the stock may continue to test out the RM1.95 hurdle in the near term.

? Although the momentum readings are heading downward, we are confident that it will remain positive at above the RM1.80 level. Otherwise, its upward momentum will diminish and it will threaten the long-term UTL support near RM1.64.

? For now, we stay optimistic and foresee a resumption of its upswing, before marching towards the RM2.11 all-time high level soon.




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