Mah Sing Group - Landbanking in Bangi

News  Proposed acquisition of 412.4ac in Bandar Baru Bangi on a net area basis for RM333.2m or RM18.55psf from Boon Siew Development S/B (more details below). The land is mostly freehold and is located on both sides of the North South Highway with a 2km highway frontage each.  It  is  also  near  the  existing  township  of  Bandar Baru Bangi and landmarks like University Kebangsaan Malaysia, Sony Plant, etc. The group is planning a new interchange to allow direct access to the project.

Comments  Southville City’s GDV is RM2.15b, and it will be a gated and guarded concept. The preliminary plans include the launching of terraces as the initial phases (1/3 of GDV) and will be priced from RM530,000 onwards (see below).

Net gearing expected to hit 0.6x from 4Q11’s 0.3x, based on an assumed 70:30 debt-equity financing. This has exceeded our comfort level of 0.5x net gearing, of which none of the developers under our coverage has exceeded.

Land cost is fair (see below) and we like that MAHSING is replenishing its mass  township landbank, since affordable housing is in demand as seen with its M Residence @ Rawang project.

But we are overall just Neutral on the acquisition. Although the 0.6x net gearing is manageable and is expected to fall below 0.5x over the next two quarters on the back of continuous billings, we prefer developers to keep their net gearing ratios below 0.5x, particularly in the current global uncertainties.

Outlook MAHSING’s FY12E sales target of RM2.5b (ours: RM2.4b) will be mainly driven by Icon City@PJ, Kinrara Residence, M City @ Jln Ampang, M Residence @ Rawang, Garden Residence, etc. Southville City’s sales will only be felt in FY13E.

Forecast We expect earnings to commence in 2H13 with more significant contributions in FY14 and onwards. As a result, there are no changes to our FY12E net profit of RM207m while there is a 2% increase in our FY13E net profit to RM268m.

Rating Maintain MARKET PERFORM

Our call is a sector driven call due to the unexciting sector dynamics couple with its higher than average net gearing level among developers under our coverage.

Valuation  Our FD SoP RNAV has increased by 5% to RM3.42. However, we are applying a wider discount of 42%* (33%  previously)  to  our  FD  SoP  RNAV  to  derive  a  lower TP of RM2.00 (RM2.18 previously) because of the reasons mentioned above.

Risks Unable to meet sales targets; this will be more impactful on developers with higher net gearing. Sector risks, including negative policies.

Source: Kenanga