Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with a higher SOP-based fair value (FV) of RM1.06 (from RM0.98/share previously) after accounting for contribution from the new Sepang project into our RNAV calculation. Our FV is based on an unchanged discount rate of 45% to our RNAV (Exhibit 3) and a neutral 4-star ESG rating (Exhibit 4).

• The FV implies a FY24F PE of 11x, at parity to the average of mid-cap property stocks currently.

• Mah Sing’s wholly-owned Fusion Heights Development (FHD) entered into a conditional sale and purchase agreement (SPA) to acquire a land encompassing up to 562 acres in Mukim Labu, Sepang, Negeri Selangor from Premier Land Resources.

• This includes the purchase of an initial parcel of the Sepang land totaling 185 acres for RM101mil (RM12.50 psf), along with an option to acquire an additional 377 acres of adjacent land within 4 years from the date of the SPA at the same price of RM12.50 psf.

• Subsequently, Mah Sing’s 70%-owned Mah Sing South Sea Industrial Development (MSSSID) and the vendor, Premier Land Resources, will enter into a shareholders’ agreement. Under this agreement, MSSSID will subscribe to and possess 80% ownership of Fusion Heights, with Premier Land retaining the remaining 20%. Consequently, Mah Sing's effective ownership in Fusion Heights will be 56%.

• Based on preliminary plans that are subject to approval by the authorities, the Sepang land is designated for industrial development. This development will consist of customised factories, industrial lots, cluster, semi-D and detached factories.

• The project is designed to cater specifically to medium and light industrial businesses, with a focus on the hightech high-value sector, manufacturing facilities, logistics and warehouses.

• To be named “Mah Sing Business Park”, the gross development value (GDV) for the initial 185 acres land (Sepang land) is estimated at RM728mil.

• The GDV for the entire 562 acres of land is estimated to be RM2bil, assuming the development components of the option land is similar to the initial Sepang land.

• Alternatively, we anticipate a GDV of RM1.5bil for the entire land, assuming that the option land will primarily focus on the sale of industrial lots.

• The land acquisition is expected to be finalised by 2HFY24. In line with Mah Sing’s quick turnaround strategy, the company plans to launch the first phase of Sepang land by 2HFY24, which will be developed over a span of 3-4 years. We estimate a negligible FY24F net profit contribution with a gradual increase to 18% of Mah Sing’s earnings in FY27F.

• While maintaining FY23F earnings, we lower our FY24F core net profit (CNP) by 1% while raising FY25F CNP by 2% to factor in finance cost and earnings contribution from Sepang land.

• The Sepang land currently holds an agricultural title. Hence, Mah Sing is required to pay a conversion premium to change its designation to industrial use: 15% for light industrial and 20% for medium industrial.

• The land price of RM15 psf (after conversion to light industrial use) to RM15.63 (after conversion to medium industrial use) implies a land cost-to-GDV ratio of 16.6% to 17.3%, which is within the industry’s average land cost-to-GDV ratio of 15%-20%.

• We deem the land to be reasonably priced after comparing with the price of industrial land in surrounding areas (Exhibit 2).

• We hold a favorable view on this development, which capitalises on industrial development opportunities in Sepang, which is integral to the Integrated Development Region in South Selangor (IDRISS). IDRISS was initially outlined under the First Selangor Plan 2021-2025, spearheaded by the state government and supported by federal and state incentives. The 5 incentive schemes introduced to stimulate IDRISS development comprise: (i) special premium scheme, (ii) development charges on instalment payment without interest, (iii) exemption of assessment tax for vacant land, (iv) 50% in assessment tax for vacant buildings, and (v) exemption of business license fees.

• The proposed development is positioned to draw industry leaders from high-tech manufacturing and value creation sectors. Additionally, this strategic initiative allows Mah Sing to take advantage of Malaysia's position as the preferred destination for the "China Plus One" strategy. This strategy is prompted by the global geopolitical landscape, motivating companies to pursue economic security and supply chain resilience in Southeast Asia.

• The stock currently trades at a bargain FY24F PE of only 10x vs. a 4-year average of 11x and offers an attractive dividend yield of 4%.

Source: AmInvest Research - 2 Feb 2024