Investing Ideas: Mah Sing a 'buy' on price weakness

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Property player Mah Sing Group Bhd may be worth a look according to analysts, given the recent weakness in its share price. The stock closed at RM2.08 on Sept 4, it’s highest since January 2008. But over the past two weeks, it has fallen to around the RM1.80 mark, closing at RM1.86 last Thursday.“While the company’s share price has been trending upwards since it made a couple of significant announcements in August, fears of the property market running ahead of its fundamentals and profit-taking have resulted in a pullback,” says an analyst. Even so, brokers are bullish on Mah Sing’s prospects, with the majority of research houses pegging the stock a “buy” or “outperform”. According to data from Bloomberg, the most recent target prices for Mah Sing range between RM2.20 and RM2.69 per share. This suggests an upside of between 18.3% and 44.6% for the stock at its current level. To recap, Mah Sing had announced on Aug 12 that it had made an en-bloc sale of an eight-storey retail and office building in its Southgate commercial centre in Kuala Lumpur for RM226 million or RM876 per sq ft (psf) to Koperasi Permodalan Felda Malaysia Bhd. Following the announcement, CIMB Research upgraded its recommendation on Mah Sing from a “hold” to a “buy”, while tweaking upwards its earnings forecasts. “The size and value of this sale (in the Southgate commercial project) was a nice surprise as we had expected the value to be less than half the amount achieved. Inclusive of the en-bloc sale and earlier launches of the three strata-titled commercial blocks, total sales from the project have reached RM389 million, which is very commendable considering the properties were launched and sold during a difficult period,” says CIMB in a report. Kenanga Research concurs in its Sept 8 property report, saying “Mah Sing has demonstrated en-bloc sales abilities even during uncertain times and is expecting to acquire another four landbanks in the Klang Valley.” CIMB has a target price of RM2.69 on Mah Sing, while Kenanga’s target price is RM2.33.The announcement aside, analysts continue to favour Mah Sing for its strong earnings visibility, backed by a massive RM4.4 billion in projects’ gross development value and landbank of 690.25 acres. Among its ongoing projects are Hijauan Residence and Aman Perdana in the Klang Valley, Sierra Perdana and Austin Perdana in Johor, and Southbay in Penang. “Earnings for the next 20 months are visible, backed by RM543 million year-to-date sales including the en-bloc sale to Felda, which lifted the company’s unbilled sales to RM818 million.“Mah Sing has approximately eight years of future development potential even if it does not expand its landbank further. We like the group for its proactive management and asset-light quick turnaround strategy,” says Maybank Investment Bank in a report. Maybank’s fair value for Mah Sing is RM2.35. For its 2QFY2009, Mah Sing reported a 38.15% y-o-y decline in net profit to RM23.04 million. This was in line with the y-o-y decline in revenue that fell to RM167.23 million from RM195.42 million. According to the company, the lower results were mainly due to a timing mismatch as The Icon Jalan Tun Razak (East Wing) was at an advanced stage of construction in 2QFY2008, while the en-bloc sale to Kuwait Finance House had been completed. In spite of the decline, Mah Sing’s balance sheet remains healthy with cash holdings of RM38.36 million, while short-term borrowings are equivalent to RM1.94 million. Going forward, analysts say catalysts for the stock include additional en-bloc and higher-than-expected sales at its townships. “Mah Sing could benefit from the recent relaxation of the Foreign Investment Committee (rules on the purchase of properties by foreigners),” says Kenanga. Standard & Poor’s says Mah Sing is looking to expand overseas into high-growth regional countries such as Vietnam, India, China and Indonesia.However, although the local property market has received a new lease of life over the past couple of months, analysts warn that the recovery has only just begun. Thus, Mah Sing still faces a risk of poor take-up in sales if the economy continues to struggle to recover. The company recently announced that it had acquired 115 acres of freehold land in Cyberjaya for RM130.5 million or RM26 psf for a residential development. CIMB takes a dim view of Mah Sing’s purchase of land in Cyberjaya as it is cautious about the area in general. “IOI Properties Bhd has a sizeable landbank near Cyberjaya and postponed its launch numerous times due to a perceived lack of demand. S P Setia Bhd proposed to acquire 156 acres in Cyberjaya at RM28 psf but did not go through with the deal as certain conditions were not met, much to our relief. Hence, we are neutral at best on Mah Sing’s proposed acquisition (of the Cyberjaya land),” says CIMB.  This article appeared in Capital page of The Edge Malaysia, Issue 773, Sep 21-27, 2009