Mah Sing Group - Landbanking in Medini

News   Entered into an outright purchase of a 8.19ac 99-year lease land from Iskandar Investment Bhd (IIB) in Medini North for RM74.7m. It comes with permitted GFA of 2.14m sf which implies a purchase consideration of RM34.90psf per plot ratio (ppr).

Comments   We like the acquisition as the group is increasing its exposure in Iskandar Malaysia (IM), Johor - a bullish area in our view - in a strategic area. Total GDV increases by 6% to RM18.8b.

The Meridin@Medini (GDV of RM1.1b) is a purpose built development. Indicative price of Meridin Suites Residences (first launch of GDV RM430m) is an ASP of RM550psf, with starting built-ups and price per unit at 500sf and RM288,000/unit, respectively.

Land price is fair as it is only 7% of GDV while RM34.90 psf ppr price tag is also within last year’s transacted range of RM25-50psf ppr. We also expect overall project margins of 20%-25%. Positively, land payments are progressive over 5 years which is ideal for its balance sheet as project billings will pay-off land cost, releasing some of MAHSING’s balance sheet pressure. We believe net gearing may inch closer to 0.6x by early next year post completing acquisition of Bangi land (peers: net cash to 0.3x net gearing); this may limit their immediate to medium term landbanking power. Positively, the group has high earnings visibility of 1.5 years and tends to bill quickly which should help pare down debt. (Refer overleaf for more details)

Outlook   So far, the group has achieved 88% of its FY12E GDV replenishment of c.RM5b and we expect MAHSING to do niche landbanking as oppose to sizeable ones given their current limited balance sheet room.

Forecast   No material impact to FY12-13E earnings, as Meridin will only significantly contribute in FY14E onwards assuming 4Q12 launch.

Rating   Maintain MARKET PERFORM

Although we are positive on Johor, Meridin only increases our FD SoP RNAV by 3% to RM3.51. Hence, strong positive impact to share price is unlikely because of its limited balance sheet room, in addition to a more challenging property market.

Valuation   Maintain TP of RM2.40, implying a slightly higher discount of 32%* (30% previously) to our FD SoP RNAV of RM3.51.

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

Source: Kenanga