Mah Sing Group Bhd
(Aug 7, 89.5 sen)
Maintain outperform with an unchanged target price (TP) of RM1.05: A sale and purchase agreement was entered into with KLFA Properties Sdn Bhd to acquire 4.52 acres (1.83ha) of leasehold land with an approved development order (DO) in Wangsa Melawati for RM62 million. The acquisition cost works out to be RM13.7 million per acre or just under RM315 per sq ft. The acquisition cost works out with a land cost-to-gross development value (GDV) ratio of about 16%, which we deem fair considering that the land has an approved DO. We were not surprised by the news as we had expected Mah Sing Group Bhd to be active in landbanking activities.

 
The land already has its DO in place for two blocks of serviced apartments. Named M Adora, it will be positioned like Mah Sing’s previous launches such as M Luna, M Vertica and M Centura. At the land cost-to-GDV ratio of about 16%, it should yield mid- to high-teens pre-tax margins, according our estimates in line with the group’s average pre-tax margins. Post-acquisition, we expect its financial year 2019 (FY19) net cash position to narrow down to 0.09 times (from 0.1 times). The right pricing strategy for this affordable mid-market segment gives us confidence in the project’s success.

We have made no changes to our earnings forecasts as we anticipate the official launch to take place in 2020 and it has been factored into our FY20 sales estimate of RM1.5 billion. We reiterate our “outperform” call on Mah Sing with an unchanged TP of RM1.05, which is based on a sum-of-parts (SoP) discount of 63% (-1.25 standard deviation) to its fixed deposit SoP of RM2.84. There is no change to our restated net asset value as the project’s value is within our RM1 billion GDV replenishment assumption. Post-acquisition, our GDV replenishment assumption has been reduced to RM600 million (from RM1 billion). The implied SoP discount is in line with our universe’s valuation range, while Mah Sing’s quick turnaround strategy and positioning as an affordable housing player deserve the better end of our applied discount spectrum. — Kenanga Research, Aug 7