Mah Sing Group - Solid start to 2015 BUY, 28 May 2015

We maintain our BUY call on Mah Sing Group with an unchanged fair value of RM3.00/share (at a 15% discount to NAV). Mah Sing delivered a strong 1Q15 net profit of RM99mil (+18% YoY). We deem its results to be in-line.

Property billings recorded a 24% YoY growth to RM707mil, backed by unbilled sales of RM5.1bil (~2x its FY14 property development revenue). Property EBIT margins dipped slightly by 0.9ppt YoY to 17.6% owing to a greater mix of affordable residential products.

Up to 22 April, new property sales was RM761mil (1Q15: RM560mil) against its full-year target of RM3.4bil. This is commendable, in our view, given the shorter working period due to the Chinese New Year break.

Take-up rates for signature projects remain promising: (i) Southville City – 85% for the first seven blocks (93% if excluding the 7th block launched in April); (ii) D’Sara Sentral (1st block – 86%; 2nd block – 70%; shops – 85%; SoVo: 70%); and (iii) Lakeville Residence – 88% for first three condo blocks; shop lots – 69%.

Tellingly, the units for the 7th block at Southville will be priced from RM480k onwards, which is still within the affordable range of <RM500k, and represents a healthy step-up in pricing from ~RM318k when the 1st block was launched in 4Q13.    

Management expects buying momentum to recover in 2H15 following the implementation of GST. We similarly expect Mah Sing’s pre-sales to accelerate in the coming months. The group’s focus on affordable homes (84% below RM1mil; 44% below RM500k) in good locations should continue to be well received. 

New launches for 2H15 include the upcoming Festival Lakecity integrated development within Puchong’s CBD, starting with a preview of executive suites. In Johor, Bandar Meridin East will debut with affordable linked homes (from RM330k onwards) targeting local buyers.

Mah Sing has recapitalised its balance sheet by raising ~RM1.2bil through a rights issue and more recently, perpetual sukuk. Such a move enables the group to capitalise on any value-accretive land-banking deals. The proposed bonus issue (1-for-4) of up to 607mil new Mah Sing shares will go ex on 8 June (listing: 11 June). 

Mah Sing is our top large-cap property pick. It is trading at a deep 40% discount to its NAV with a sizeable GDV pipeline of RM44bil across a diverse range of attractively priced products that target first-time homebuyers and those below 40 years old (~70%). The 108,000ha Malaysia Vision Valley mooted under the 11th Malaysia Plan to complement Klang Valley’s growth, bodes well for Mah Sing’s Seremban landbank.