Saturday, 15 July 2017

(The Star) Mah Sing hungry for more land

Leong: We can potentially add a further RM10bil of new GDV from landbanking activities, assuming that the ratio of land cost to GDV is 10.
Leong: We can potentially add a further RM10bil of new GDV from landbanking activities, assuming that the ratio of land cost to GDV is 10.

Developer mulls up to RM1bil landbank acquisitions as it stays on aggressive path

After a lull of nearly three years, property developer Mah Sing Group Bhd is again aggressively expanding its landbank via a series of acquisitions this year.

In fact, the group has indicated that more landbank acquisitions worth up to RM1bil are on the cards. While the Main Market-listed group is actively on the look-out for potential land, it has not provided any specific timeline for the land purchases.

In a reply to StarBizWeek, Mah Sing group managing director Tan Sri Leong Hoy Kum says the year 2017 is apt for its pursuit of more landbank, catalysed by renewed interests as well as strong fundamentals which will further bring positive outlook to the mid and long-term prospects. The group’s current total landbank size stands at approximately 2,183 acres.

“For the past few years, we have been taking a prudent approach and being risk-adverse given the weak market sentiments of the property market.

“We will be guided by our capital management policy of not exceeding the net gearing level of 0.5 times. We can potentially add a further RM10bil of new gross development value (GDV) from landbanking activities, assuming that the ratio of land cost to GDV is 10%,” says Leong.

He adds that despite Mah Sing’s active landbanking initiatives, the group will only acquire land which fulfil certain criteria, such as being strategically located, fairly priced and having favourable payment terms.

This year alone, Mah Sing engaged in a series of land acquisitions worth a total of RM496.4mil. The newly-acquired parcels of land, which are located in Titiwangsa, Sentul, Cheras and Bukit Mertajam, come with a cumulative land size of approximately 34.2 acres and are estimated to have a total GDV of RM4.3bil.

Recently, the group also rescinded its long-stalled acquisition plan of an 85.3-acre plot of land in Sultan Salahuddin Abdul Aziz Shah Golf Course, Shah Alam, following a non-fulfillment of land conversion approval and consent to transfer.

On top of that, Mah Sing also disposed of its 51% equity interest in Convention City Development Sdn Bhd for a total of RM6.6mil.

The stake was acquired in 2013 for RM1.6mil as Convention City possesses the development agreement to develop 8.3 acres of land next to Sabah International Convention Centre, in Kota Kinabalu.

Mah Sing has a market capitalisation of approximately RM3.86bil.

Leong is the single largest shareholder in the group, with an equity interest of 35%.

To date, Mah Sing has engaged in a total of 48 projects, of which 13 are completed and 35 more are in the midst of strategic phases of development.

“Currently our remaining gross development value and unbilled sales stand at RM30bil which can last us for the next eight years. With the new acquisitions, currently Klang Valley yields approximately 67% of our remaining GDV and unbilled sales, and we target to increase it to 75% within the next two to three years,” Leong says.

Mah Sing is financing the landbank acquisitions via a combination of internally generated funds, bank borrowings and the proceeds raised from the group’s perpetual securities programme launched earlier this year.

To note, the property developer issued a RM650mil worth perpetual securities programme in April 2017, which is primarily earmarked for landbanking and working capital, as well as to accelerate construction for projects with good take-up rate.

Mah Sing’s aggressive landbanking initiatives are not deemed negative to its leverage and liquidity level, as the group which sits on a cash pile of RM837.6mil as at the end of March 2017, is further buttressed by its present low gearing ratio of 0.02 times, proceeds from its perpetual securities programme and the expected cash inflows of RM637mil from billings on completed properties this year.

Positive feedback

Analysts are sanguine on Mah Sing’s landbank initiatives, which is targeted to streamline the property developer’s portfolio and refocus on building affordably priced products particularly in the Klang Valley.

In a recent note, Maybank IB Research expressed its optimism on Mah Sing’s latest land-related transactions.

“We are positive on Mah Sing’s latest moves which involve the acquisition of two attractively-priced land parcels in the more strategic located areas and the rescissions of land deals in Sabah and Shah Alam.

“We adjust our earnings forecasts for 2017, 2018 and 2019 by -1.3%, -0.5% and 4% respectively, to factor in the new projects in Cheras and Bukit Mertajam and the cancelation of land deals,” says the research house.

Echoing a similar positive take on the property developer’s landbanking initiatives, TA Securities Research indicated that the Cheras and Bukit Mertajam land deals come with reasonable costs.

“The acquisition costs of the Cheras land and Bukit Mertajam land represent a 21% and 3.3% discount to the land market value of RM333.2mil and RM45.3mil, as appraised by independent market valuer.

“We expect Mah Sing’s upcoming development on the Cheras land to replicate the group’s existing projects such as Lakeville in Taman Wahyu and D’saral Sentral in Sungai Buloh, which have been well-received.

“Meanwhile, the Bukit Mertajam land will provide the group with an opportunity to further strengthen its branding in the development of the group’s i-Parc series of industrial properties,” noted TA Securities Research, which maintained a “buy” call on Mah Sing.

Moving forward, Mah Sing aims to be fairly focused on the affordable mid-range housing segment in the near- to mid-term.

The group envisages 73% of its target sales to come from residential properties priced below RM700,000.

Specifically, approximately 33% of its upcoming residential properties will be priced below RM500,000, to meet the growing demand in the affordable housing segment. “We want to streamline our portfolio of landbanks to fit our current business strategies and match existing market demand, such as to focus on Klang Valley, and build quality homes with affordable pricing.

“We will continue to launch the right products that cater to the market demand with the focus on affordably priced properties,” says Leong.

Commenting on Mah Sing’s unsold property inventory of about RM2bil, he says that the figure represents total units that have been launched and are available for sale.

“Actually, completed and unsold inventory is only slightly more than RM300mil, a very low and healthy level due to good take-up rate of our projects.

“Ideally, we would like to maintain unsold inventory levels at about eight to nine months equivalent of target sales. This is to ensure continued sales momentum, and to prepare for pick-up or recovery in demand,” he says.

In the first quarter of this year, the property developer has sold some RM410mil worth of properties and is on track to meet its 2017 target of RM1.8bil, which is slightly higher than its sales revenue a year ago.

KAF-Seagroatt & Campbell Securities points out that Mah Sing is focused on clearing its unsold inventory by embarking on numerous marketing campaigns in the second quarter of 2017 (Q2’17), and has held back new pre-sales in the quarter.

“This has had some success in moving unsold stocks, particularly at the retail shops at its flagship Southville City where take up rate has risen to more than 50% in Q2’17.

Hence even without new presales, we expect Mah Sing to deliver sales of close to RM400mil from inventory liquidation. This should assuage the market’s concern over its seemingly high inventory.

“Mah Sing plans to accelerate new presales in Q3’17 starting with the two phases on terrace houses with a GDV of RM200mil at Bandar Meridin East next month,” says the research unit.

Mah Sing’s share price has risen by 12% to RM1.60, year to date. In fact, the rise is in tandem with the steadily increasing investor confidence in local property stocks.

Year to date, the KL Property Index (made up of the listed shares of property companies) has risen by 13%, outperforming the market barometer FBM KLCI which has grown just 7% during the same period.

With regard to its price-to-earnings (PE) ratio, Mah Sing which has a PE of 12.05 times, is fairly valued compared to its industry peers.

According to Bloomberg figures, other listed property companies such as UEM Sunrise Bhd, SP Setia Bhd and Eco World Development Group Bhd have PEs of 28.71 times, 11.5 times and 18.74 times respectively.