Mah Sing looks inward

This article first appeared in The Edge Financial Daily, on June 13, 2017.
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KUALA LUMPUR: Mah Sing Group Bhd will continue looking inward to concentrate on the home market, although more Malaysian property developers are looking beyond local shores.

The fact that the group announced two latest land acquisitions in just a fortnight last month after a two-year hiatus from land bank expansion says it all.

Mah Sing founder and group managing director Tan Sri Leong Hoy Kum cited two reasons why it remains home-based, at least for now — the firm demand for affordable housing and its existing massive 2,255 acres (912.57ha) of land bank that will keep the group busy for the next eight to nine years.

“We are in a good position to address the supply shortage of affordable homes, catering to the middle-income group with our diversified range of properties,” said Leong.

“We believe the demand from property buyers who are buying to own or for long-term investment will continue to be strong,” he added.

He noted that according to the National Property Information Centre, there is an insufficient supply of new homes compared to the increase in households, whereby between 2012 and 2014, annual completion of new homes was 85,000 units against an average of 118,000 new households.

“We are definitely exploring and are open to opportunities overseas. If there is a good point to go abroad, then why not? But we are not in a hurry as we have enough land bank in Malaysia to keep us busy,” Leong told The Edge Financial Daily in an interview.

“If we were to expand overseas, we will set our foothold [cautiously], starting with small-scale projects,” he said.

Elaborating on this, Leong said any intention to grow overseas must first be backed by extensive financial resources and understanding of the target markets.

“You need to have deep pockets and really understand the market well. At the moment, the outlook for foreign [property] markets may not be very bullish than it was before although I would say it is healthy,” Leong explained.

“That’s why we are not in a hurry, but if we decide go abroad, we will do it in a small way just to test the market first. Further, if the outlook for a particular market is clearer, we’d be more comfortable with expanding overseas,” he said.

Leong noted that the group is currently focusing on Kuala Lumpur, the Klang Valley and Penang’s mainland without neglecting Johor.

The group’s temporary break from land purchase has enabled the property developer to build up its war chest and improve cash flow.

“For two years, we did not purchase any land, and our balance sheet and cash flow improved during this period,” Leong said.

“Seeing the current slowdown in the property market, it’s a good opportunity for us to lock in more land as there is less competition among developers, which means we have more choices in terms of location,” he said.

As at March 31, the group’s healthy cash pile was at about RM837.6 million, while net gearing was at 0.02 times.

The first tract that Mah Sing bought last May is in Titiwangsa measuring 3.56 acres, whereas the second land is in Sentul with the size of 8.5 acres.

The two parcels will be developed into non-landed residential properties priced below RM500,000 per unit.

Mah Sing is “actively shopping” for more land. However, Leong declined to reveal details as the group is still in discussions with the related parties.

Mah Sing had previously said that it planned to launch six projects worth RM1.9 billion, and is targeting at least RM1.8 billion in sales this year, which will be driven mainly by projects in the Klang Valley.

On another note, when asked if the group has plans to set up its own construction arm, Leong said it is not on the cards for now as it is more manageable — in terms of costs — to subcontract work out.

“It is not easy to manage a construction arm. So what we do is we have qualified contractors come back [to us] with better terms and costing, while we manage our own staff,” he said.

“If you have your own construction division and it doesn’t perform well, you will end up with higher costs than what you would incur if you subcontract work instead,” Leong explained.

Meanwhile, given Mah Sing’s cash position, Leong said it “does not make sense” for a merger exercise with other property developers.

The group said that it is “running a tight ship”, with 950 staff working on its current property projects.

“We have enough [cash] to readily acquire more land so it does not make sense for us to merge with anybody. When you merge with another developer, you must have a good rationale, whether it’s to improve cash flow, increase land bank or leverage on others’ expertise,” Leong said.

“So far, we have all these. Of course, we can’t speak for the future but if we see good [justifications] that would provide mutual benefits, then we’ll consider it. But for now, we are good,” he added.