Maybank IB positive on Mah Sing’s Kinrara land deal

Mah Sing Group Bhd
(July 6, RM1.69)

Maintain buy at RM1.66 with target price of RM2.20: We are positive on Mah Sing’s purchase of 13.2 acres (5.34) of 98-year leasehold residential land in Kinrara for RM35.4 million. The land cost of RM61.60 psf is fair, given: (i) estimated locked-in sales of circa RM44 million (44% of gross development value), (ii) substantially completed infrastructure with no low-cost housing, open space and bumiputera quota requirements, and (iii) its strategic location.

This project, with an estimated RM100 million GDV over three years of development, is expected to boost our FY10/12 earnings forecasts by 2% to 4.5%. There is marginal change to our forecasts; immaterial impact on our RNAV-based target price. Maintain buy.

The land comprises 180 units of vacant terrace house lots. Year to date (YTD), the development has achieved 44% take-up or an estimated RM44 million sales (including booking) since its launch last April. The main infrastructure has been substantially completed by the landowner. We understand that the land is cleared and levelled and is ready for construction to begin. The land is in an established location with good accessibility and amenities, and is surrounded by matured housing townships.

Mah Sing is buying the land from Medan Damai Sdn Bhd, 100%-owned by Mahajaya Bhd. Assuming a pre-tax margin of 15%, as well as raising our earnings forecasts it will raise our RNAV per share by one sen. Upon the completion of the land acquisition, Mah Sing’s net gearing is expected to increase marginally from 5% (1QFY10) to 9%.

This is the company’s fourth land acquisition in FY10. Mah Sing has has expanded its landbank and enhanced its total GDV by 6.6% and 17.9% to 634 acres and RM5.4 billion, respectively.

Even with these acquisitions, Mah Sing’s net gearing remains healthy at 9%. This suggests that there is still significant potential for future landbanking exercises. The management is now studying the potential investment in government lands. — Maybank IB Research, July 6




This article appeared in The Edge Financial Daily, July 7, 2010.