KAF raises Mah Sing’s earnings forecast, target price

KUALA LUMPUR (Aug 15): KAF Research Sdn Bhd has raised its target price (TP) and earnings forecast for Mah Sing Group Bhd to factor in the stellar take-up rate for the property group’s cornerstone developments.

The two cornerstone developments are Bandar Meridin East in Pasir Gudang, Johor, and Southville City, near Bangi, Selangor, which have a gross development value (GDV) of RM5.5 billion and RM11.1 billion respectively.

In a research note issued last week, KAF Research lifted Mah Sing’s TP to RM2.20 from RM1.50 as it foresees a pickup in presales in the coming quarters.

The research firm expects the premium property developer to post a net profit of RM380 million for the current financial year ending Dec 31, 2016 (FY16) and RM398 million for FY17. Last year, it recorded a net profit of RM386.7 million.

“We believe the risk to Mah Sing’s earnings in the immediate fiscal years is low,” KAF Research said, adding that this is supported by some RM474 million worth of prior years’ sales in final stage billings and unbilled sales of RM4.5 billion.

According to KAF Research, Mah Sing’s new presales more than doubled to RM575 million in July, driven by residential launches of Cerrado in Southville City, the final condominium block of Lakeview and the second batch of terrace houses in Bandar Meridin East.

Over the weekend, the group launched Block II of Cerrado in Southville City and Phase II of Feringgi in Penang worth a combined RM400 million.

Meanwhile, Mah Sing is sticking with its presales target of RM2.3 billion for FY16, implying some RM1.9 billion of new presales in the second half of the year to rejuvenate buying sentiment on the stock.

KAF Research said Mah Sing had good prospects of net asset value (NAV) growth even in the face of a flattish residential pricing cycle because at the micro level, the group’s well-executed projects would experience higher GDV as the project development cycle matures.

It also noted that Mah Sing is actively talking to Mass Rapid Transit Corp Sdn Bhd to extend mass rapid transit stations to Bangi given its high catchment area.

KAF Research is also bullish on Mah Sing’s Bandar Meridin East development, which is at its early stages of the project’s life cycle.

On financial management, the research firm said Mah Sing had been disciplined in managing its balance sheet thus far.

“It aborted two land deals — in Seremban (Negeri Sembilan) and in Puchong (Selangor), where the development potential may not be too immediate unlike the quick success it is enjoying with its Southville City, Lakeview and M-City (Jalan Ampang, Kuala Lumpur). Both projects were competitively priced at market-clearing levels,” it added.

KAF Research noted that Mah Sing is now looking to resume landbanking to drive NAV growth, with several land deals likely to be clinched by year end.

“Its landbanking strategy now gravitates towards development sites that would offer greater concentration of affordable homes where take-up rates are underpinned by owner-occupied demand given a changed market landscape,” it said.

The research firm noted that Mah Sing is sitting on a prized piece of development land, measuring some 34.40ha in Shah Alam, a rare parcel of land in a mature neighbourhood comprising largely luxury homes.

“The said land was acquired at an attractive price of RM88 per sq ft. The deal, however, is still pending approval from the state for the transfer of title as well as conversion approval from [a] golf course to residential. The seller has until September to satisfy the above-mentioned conditions precedent,” it added.

Earnings-wise, KAF Research said Mah Sing’s earnings more than doubled to RM357 million in FY15 from just RM170 million in FY11, representing an earnings compound annual growth rate of more than 25%.

“At [the] current elevated earnings level, we believe that the high growth phase may be over,” it said, adding that Mah Sing is moving into a more sustainable steady growth phase, characterised by modest earnings growth but with lower balance sheet risk.

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This story first appeared in TheEdgeProperty.com pullout on Aug 15, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free.