UBS maintains ‘buy’ ratings on Mah Sing and S P Setia

KUALA LUMPUR: UBS Securities Malaysia Sdn Bhd has maintained its “buy” calls on Mah Sing Group Bhd and S P Setia Bhd, while downgrading UEM Sunrise Bhd to “neutral” from “buy” after assuming coverage of the Malaysia property sector recently. 

“Mah Sing and S P Setia have traded broadly in line with the sector index, although the share price recovery has been comparatively moderate,” UBS Securities said, adding that UEM Sunrise’s share price, however, has weakened, due largely to weaker sales and negative sentiment in the Iskandar region.

Mah Sing’s counter closed unchanged at RM2.26 yesterday, while S P Setia closed 0.69% higher at RM2.93. UEM Sunrise, on the other hand, dropped 1.43% to end at RM2.07.

The research house said in a note dated May 30 that it believes Mah Sing has the advantage of pricing, while S P Setia has quality landbank for township developments.

UBS Securities said Mah Sing is its preferred pick in the property sector because of its growth potential and breadth of product offerings in terms of pricing and geographical mix, which would help the company outperform its peers.

Mah Sing has adopted a high asset turnaround model focused on rapidly realising the value of its existing landbank, UBS Securities noted.

“This has resulted in a high asset turnover of 0.49 times (sector average: 0.28 times) and return on equity of 17.6% (sector average: 10.2%),” it said.

From the previous target price of RM2.70, UBS Securities set a new target price of RM2.75 for Mah Sing on a 20% discount to its sum-of-parts revalued net asset value (RNAV) estimate of RM3.44.

It also pointed out that based on the estimated gross development value (GDV) of RM26.1 billion, Mah Sing would have enough GDV to last at least seven years. The property player had unbilled sales of RM4.6 billion as at March 31 this year.

“As such, we believe Mah Sing has the ability to deliver on its 20% earnings growth target in 2014.”

As for S P Setia, UBS Securities said the concerns about management disruption have been largely reflected in the share price and it expected upside potential from this level, with former chief executive officer Tan Sri Liew Kee Sin’s departure as a turning point.

The research house picked S P Setia for its strong earnings visibility with unbilled sales of RM10.5 billion — 3.4 times FY13 revenue — sizeable and mature landbank and considerable exposure to international markets.

“We base our price target of RM3.60 on a 30% discount to our sum-of-the-parts RNAV of RM5.10 per share.”

Apart from the Battersea development in London, S P Setia has seven other international developments, reflecting S P Setia’s diversified portfolio which minimises concentration risk for the firm.

Meanwhile, UEM Sunrise has a sizeable landbank of almost 12,000 acres (4,856ha) with pipeline projects valued at a GDV of RM80 billion.

However, UBS Securities said that the intense competition is a threat in view of UEM Sunrise’s concentrated risk in the Iskandar region.

“Given the competition concerns and the lack of near-term catalysts, we downgrade the stock from “buy” to “neutral”,” it said.

The target price of RM2.20 for UEM Sunrise is based on its forecast RNAV, which assumes sustainable annual sales of RM1.75 billion for the Nusajaya landbank and a project-based discounted cash flow methodology for the remaining landbank.

This article first appeared in The Edge Financial Daily, on June 4, 2014.


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