Increased land bank likely to boost Mah Sing’s near-term sales

This article first appeared in The Edge Financial Daily, on July 25, 2019.
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Mah Sing Group Bhd
(July 24, 92.5 sen)
Maintain add with an unchanged target price (TP) of RM1.20:
Mah Sing Group Bhd announced yesterday it is acquiring an about 5.47-acre leasehold vacant land in Tempat Taman Metropolitan in Kepong, Kuala Lumpur for RM94.8 million from JL99 Holdings Sdn Bhd. The land cost is inclusive of a development charge and land premium, and the parcel comes with an approved development order for serviced apartments.

Excluding these costs, the actual land cost is about RM61 million or RM257 per sq ft. Given its net cash of RM707 million as at end-March of financial year ending Dec 31, 2019 (FY19), Mah Sing could comfortably finance the land acquisition with its cash balance. This is the group’s second land acquisition in 2019, after buying 4.3 acres of land in Sri Petaling in March 2019 for RM90.3 million.

The land, 14km from Kuala Lumpur City Centre, has a wide catchment from established neighbourhoods of Kepong, Taman Selayang Jaya and Batu Caves. The land is also within walking distance from the Kepong Metropolitan Park, and near public transportation — it is 3.3km from the upcoming Metro Prima mass rapid transit 2 station, and 4km from the Taman Wahyu KTM station.

Mah Sing estimates the tract’s gross development value (GDV) is about RM705 million. The land deal is fair in our view, given the land cost to GDV ratio is about 13%, below the normal 20% threshold. Mah Sing aims to launch the Kepong project M Luna by the fourth quarter of 2019, consisting of two blocks of serviced apartments with an indicative built-up from 700 sq ft and a starting price of RM385,000.

We are positive on this deal given the plot’s good location and an increased land bank could boost the company’s near-term sales, which in our view could rerate its share price. We view Mah Sing would likely continue scouting for more strategic land banks in the Klang Valley, as there could be good bargains in the market given the muted property market.

Our TP of RM1.20, based on a 35% discount to realised net asset value, remains intact. Our earnings forecasts are also intact, as the group is still maintaining its FY19 new property sales target at RM1.5 billion and its expected project launches in FY19 at RM2 billion GDV. Key risks to our “add” call are a sudden deterioration in property market sentiments and weaker-than-expected property sales. — CGSCIMB Research, July 23