MAHSING is developing 185 acres of land in Sepang, Selangor, into a new industrial project with an estimated GDV of RM728m. We understand that the project is likely to do well thanks to joint efforts from certain reputable Chinese party. We maintain our forecasts, TP of RM1.00 and OUTPERFORM call.

MAHSING is developing 185 acres of land in Sepang, Selangor, into a new industrial project called Mah Sing Business Park with an estimated GDV of RM728m. The land is located within the Integrated Development Region in South Selangor (IDRISS) zone, being part of the First Selangor Plan 2021-2025 initiative.

The developer company called Fusion Heights Development Sdn Bhd (Fusion Heights) will ultimately be 80% owned by Mah Sing South Sea Industrial Development Sdn Bhd, a 70:30 JV between MAHSING and a Chinese party, and the remaining 20% by the vendor of the land called Premier Land Resources Sdn Bhd (Premier Land). Fusion Heights is acquiring the 125 acres of land from Premier Land for RM100.7m or RM12.50 per sq ft (psf). Fusion Heights has an option to acquire another 377 acres of adjacent land at the same price tag of RM12.50 psf from Premier Land. The potential GDV for the entire 561.7 acres could reach up to RM2b.

The products to be developed on the land include custom-built factories, industrial lots, clusters, semi-D, and detached factories, targeting medium and light industrial businesses. It is scheduled to commence in 2H 2024 and be fully completed in 3-4 years.

Attractive land price. We find the purchase price to be highly favourable to MAHSING. We gathered that industrial land parcels averaged at c.RM67 psf as opposed to the proposed price tag of RM12.50/sq ft. The huge discount could be attributed by the significantly large landbank entailed by the deal in addition to the possibility of high value development brought about by MAHSING's Chinese partner, hence the willingness to offer a steep discount by the landowner. Meanwhile, an implied land cost/GDV of 14% is within the industry's average ratio of 10%-20%.

We are positive on the latest development. Based on our preliminary estimates, the project could potentially add 1.0 sen to both our RNAV/share and TP for MAHSING.

Forecasts. Maintained pending the completion of the deal.

Valuations. We keep our TP of RM1.00 based on an unchanged 50% discount to RNAV, which is below the industry’s average of 55%. This is to reflect its significant exposure to high-rise residential and commercial segments which are highly sought after currently. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like MAHSING for:(i) its efforts to keep its net gearing ratio in check, with a 3QFY23 reading of 0.13x being the lowest, creeping up to 0.34x in 2QFY22, (ii) lifestyle-focused products to provide ease of entry for first-time home buyers, and (iii) sound land bank management turnaround which minimises carrying costs. That said, MAHSING is still relatively heavily exposed to high-rise residential properties which will continue to be in a state of overhang in certain regions. Maintain OUTPERFORM.

Risks to our call include: (i) persistent overhang in the high-rise segment, (ii) widening losses at its glove division due to persistent oversupply, and (iii) sustained elevated inflation and rising interest rates, hurting affordability.

Source: Kenanga Research - 2 Feb 2024