Mah Sing staying positive

Will the company's head honcho succeed in turning the company into an international-class property developer with market capitalisation of RM5 billion in the next three to five years?

A slowdown in the property market is the last thing Mah Sing Group Bhd managing director and CEO Tan Sri Leong Hoy Kum is concerned about as he strategises for another sales record to defy the naysayers. In fact, Leong has raised the group's sales target for 2013 to RM3 billion — 20% higher than last year.

Some investment analysts, though, feel that Mah Sing may be aiming too high as the hot property market is expected to start cooling down, ending its more than three-year bull run. The global economic uncertainties could make things worse, they warn.

The analysts are concerned that the group's quick turnaround business model, launching projects six months after the land purchase, would be put to the test.

Mah Sing has been active in landbanking to keep pace with its new projects, some analysts observing that the group does not mind paying more for tracts in good locations.

They say that while Mah Sing could afford to do so, the higher land costs may leave the company exposed if the market turns.

"It will have less room to manoeuvre its prices to attract buyers if demand slows down. Also, the group will be trapped by its aggressive landbanking if it isn't able to roll out the projects as fast as before," says a property analyst. "This could strain its balance sheet and cash flow."

Leong, who has been in the property development business for 20 years, is, however, confident of hitting the target based on what is already in hand. He also believes the group has a healthy enough balance sheet to withstand any seismic shifts.

Indeed, Leong wants to grow Mah Sing into an international-class property developer with market capitalisation of RM5 billion in the next three to five years compare with RM1.76 billion now.

Leong reiterates that he will remain in the driving seat to steer the group towards the goal and intends to stay at the helm for many years to come.

He categorically denies that there are plans for a merger or any chance of his losing his grip on the company anytime soon.

"The merger deal with Dijaya (Corp Bhd) is not on … that's all I will say," he tells The Edge in a lunch interview.

"I can't rule out the possibility of this happening in the distant future when the offer is too good to reject … but we are not in talks with anyone at this juncture."

It is a well-known fact that Dijaya chief Tan Sri Danny Tan is looking for a merger partner to chart future growth and to manage his property business.

Mah Sing is said to be Tan's top target, given its track record in the industry. However, some bankers say the deal breaker could the issue of control over the merged entity.

Realistically, it is hard to see how the two tycoons, given their strong personalities, could work under the same roof.

Moreover, Mah Sing, the largest non-government-owned property company, is reaping the fruits of its labours. There is no reason why Leong would want to share the harvest.

Good earnings visibility
"We have paved the way to sustain our momentum in 2013," Leong says confidently.

The group had achieved unbilled sales of nearly RM3 billion as at September 2012, more than twice its revenue in 2011.

"The unbilled sales give us comfortable earnings visibility in 2013," Leong explains.

"We are also on track to meet our 2012 sales target of RM2.5 billion. This is the highest ever and the second year we have breached RM2 billion in sales," he continues, stressing that Mah Sing's earnings have been climbing steadily over the past decade. This is thanks to his bold move into property development, which offers a better profit margin than plastics manufacturing — the group's first core business.

Mah Sing had RM2.2 billion in sales as at Nov 15, not far from its RM2.5 billion target for 2012, and is expected to report record profits again.

Market consensus forecasts the group's profit to be RM226.1 million, or 26.2 sen per share, for FY2012 and RM277.7 million, or 33 sen per share, for 2013.

For the nine months ended Sept 30, the group posted a net profit of RM175.2 million, up 37% from RM127.5 million in the previous corresponding period. Revenue was nearly 17% higher at RM1.33 billion compared with RM1.14 billion a year ago.

Apart from impressive earnings growth, Leong points out that the group is on a sound financial footing with a strong balance sheet.

"We have maintained prudent fiscal discipline and, despite our land acquisition, our balance sheet is very healthy with a cash pile of RM545.3 million and net gearing of 0.3 times as at Sept 30, 2012," says Leong.

He points out that the group's projects have seen healthy take-up rates. "The RM3 billion in unbilled sales will generate steady cash flow for us to acquire good landbank should opportunities arise."

Leong applies the "just-in-time" concept in manufacturing that he learnt in Japan when he was young to his property business. "The just-in-time concept is a cost-efficient way to run a business. But sometimes it could also mean just in time for trouble," he laughs. Its balance sheet as at Sept 30 shows that Mah Sing's borrowings amounted to RM899.9 million, including long-term debt of RM875.1 million.

To strengthen its financial footing, the property developer has proposed a cash call to raise RM400 million of fresh capital, which is likely to be used to purchase land.

The group has sweetened the rights issue with free warrants plus a proposed bonus issue after that.

Mayang Terantai Sdn Bhd, Leong's investment vehicle that holds 34.8% equity interest in Mah Sing, is underwriting the proposed rights issue. Consequently, the private company is seeking a waiver from a mandatory general offer should its shareholding trigger the 33% threshold. "I will underwrite all the shares from the rights issue. It's a good opportunity to raise my stake in the company and show how confident I am about the group's future prospects," says Leong.

Other substantial shareholders are the Employees Provident Fund with 9.2%, Koperasi Permodalan Felda Malaysia Bhd with 7.4% and Retirement Fund Inc (KWAP) with 7.2%.

Focus on the mass market
Mah Sing will focus on township development in 2013.

"Mid to high-end and affordable properties, priced at RM330,000 or lower, will take the lead in 2013. There's strong demand for smaller units of affordable serviced residences and landed residential properties in good locations," says Leong, who anticipates about 77% of the 2013 sales target to come from landed residential projects.

"We will continue to scout around for land to cater for the mid to high-end segment, including greenfield and brownfield developments in hot spots such as Greater KL, Penang island, Iskandar Malaysia and Sabah," he says. "We are also open to any joint-venture proposals and keen on government land privatisation projects."

Leong sees opportunities in the development of the Rubber Research Institute of Malaysia's land in Sungai Buloh. He believes there will be space for Mah Sing in the affordable housing segment, which the government is pushing in a big way.

"Ultimately, we are not just selling a house to our customer, we are also selling a lifestyle, including landscaping, facilities and so on," says Leong. "People won't mind paying a bit more for our brand."


This story first appeared in The Edge weekly edition of Dec 31, 2012-Jan 4, 2013.


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