KUALA LUMPUR: Mah Sing Group Bhd, the country’s second-largest property developer by sales value, has revised down its sales target for 2015 by a third to RM2.3 billion from RM3.4 billion, owing to the softer market conditions.

The group is also scaling back its launches for the year to RM2 billion from an earlier estimate of RM3.4 billion. In a statement yesterday, Mah Sing said the revisions were made after observing that homebuyers were taking the wait-and-see approach. It now estimates the temporary weak sentiment to last more than the originally expected six to nine months.

In a filing with Bursa Malaysia, the group noted the current market outlook has been affected negatively by the rising cost of living resulting from the implementation of the goods and services tax, coupled with the weakening ringgit. It said this is further amplified by the tightening of loans by banks, and global financial and economic uncertainties, which have dampened confidence.

To mitigate the impact of the challenging environment, Mah Sing said it will continue to be disciplined and prudent in its business development decisions, balancing growth and stability.

Mah Sing also said it will not proceed with the acquisition of 88.7 acres (35.9ha) of land in Puchong, Selangor, for RM656.9 million. As such, the sale and purchase agreement (SPA) has been rescinded. Accordingly, Mah Sing said all balance monies paid by its wholly-owned unit MS Lakecity Sdn Bhd to the vendor — after deducting 1% of the purchase consideration or RM6.6 million as commitment fee and agreed liquidated damages — will be returned to MS Lakecity free of interest within 60 days after the rescission of the SPA.

Mah Sing previously announced in August last year that the proposed buy — initially expected to be completed in the second half of this year — was for a mixed-use development with an estimated gross development value (GDV) of RM9.3 billion.

“As the development would be developed over 10 years, with revenue contribution estimated to commence only in 2016, the rescission of the SPA is not expected to have a material effect on the earnings of Mah Sing in the near term. Any medium- to long-term impact would be mitigated through the development of its existing land bank and/or new land acquired in the future,” said the group.

Nevertheless, Mah Sing said the remaining GDV of RM26.4 billion — the bulk of which is at the planning and introductory stage — and unbilled sales of RM4.8 billion will provide it with growth and earnings visibility for the next six to eight years.

On the gross proceeds of RM629.32 million raised from a rights issue with warrants, of which RM262.8 million was earmarked for part payment of the Puchong land, Mah Sing said the balance amount of RM256.2 million — after deducting the RM6.6 million payable to the vendor — has been proposed to be reallocated for other potential land acquisitions and/or property development activities.

It will be seeking the approval of its shareholders at an extraordinary general meeting to be convened on the variation of the utilisation of the proceeds from the rights issue with warrants.    

Yesterday, Mah Sing posted a 3.9% increase in net profit for its second quarter ended June 30, 2015 (2QFY15) to RM90.49 million, from RM87.07 million a year ago, mainly due to higher work progress and sales from the group’s ongoing development projects. However, earnings per share was lower at 3.77 sen in 2QFY15 compared with 4.53 sen in 2QFY14 as Mah Sing’s share base had expanded after the rights and bonus issues earlier this year.

Revenue for 2QFY15 expanded 10.7% to RM780.48 million (2QFY14: RM705.02 million). For the six-month period (1HFY15), Mah Sing’s net profit grew 10.8% to RM189.38 million or 8.34 sen a share (1HFY14: RM170.85 million or 8.92 sen a share), while revenue rose 16.1% to RM1.56 billion (1HFY14: RM1.35 billion).

Mah Sing said its focus on further strengthening its business fundamentals, both operationally and financially, is to position itself for  future opportunities and the delivery of steady, sustainable performances over the longer term.

This article first appeared in digitaledge Daily, on August 27, 2015.