Buys Land in Sepang

Fusion Heights Development Sdn Bhd (FHD), a wholly-owned subsidiary of Mah Sing South Sea Industrial Development Sdn Bhd (MSSSID), which is itself a 70%-owned subsidiary of Mah Sing, has formalised a sale and purchase agreement for the acquisition of a 185-acre land from Premier Land Resources Sdn Bhd (landowner) at a purchase consideration of RM101mn (or RM12.50 psf).

Additionally, the agreement includes an option for FHD to acquire an additional 376.65 acres of adjacent land at the same fixed price within a fouryear timeframe. Simultaneously, FHD, MSSSID, and the landowner intend to establish a shareholders' agreement, facilitating the landowner's subscription to 20% of the shareholding in FHD.

A Strategic Location

The land is strategically located in the Integrated Development Region in South Selangor (IDRISS) zone, an initiative outlined in the First Selangor Plan 2021- 2025. With an estimated Gross Development Value (GDV) of RM1.0 trillion, IDRISS serves as Selangor's key strategic blueprint designed to enhance economic development in the Sepang and Kuala Langat districts.

The land also benefits from excellent air transportation connectivity, being positioned just 10km from Kuala Lumpur International Airport (KLIA). Noteworthy logistics hubs in the vicinity include Cainiao Warehouse by Alibaba Group, Pos Aviation E-Commerce Hub, and DHL Global Forwarding. Moreover, its strategic location places it in close proximity to key ports, with West Port at 65km and North Port at 75km. 

See Appendix 1 for the location of the land.

Business Park With a GDV Potential of RM728mn

Contingent upon approval from the relevant authorities, the preliminary plans for the land outline the establishment of Mah Sing Business Park, a world-class industrial development. The proposed business park will feature customised factories, industrial lots, and a mix of cluster, semi-D, and detached factories, tailored to meet the needs of medium and light industrial businesses. The estimated GDV for the 185 acres is approximately RM728mn. Expanding to the entire 561.65 acres, the projected GDV is estimated at around RM2.0bn, encompassing development components similar to those planned for the option land. The business park’s focus is on attracting industry leaders in the high-tech manufacturing and value creation sectors.

In line with the group’s quick turnaround strategy and subject to authorities’ approval, the development of Mah Sing Businss Park is expected to commence in the second half of 2024 and take three to four years to complete.

Positive on the Deal

The land cost of RM101mn represents 13.8% of the total GDV, which falls below the general rule of thumb of 20%. This indicates a favourable land costto-GDV ratio. Besides, the purchase price (RM12.50psf) is comparable to Mah Sing's previous acquisition of 100-acre land in the Sepang district for the development of M Senyum, announced in Feb 2021, at an acquisition price of RM22psf. Considering these factors, the acquisition price is considered reasonable.

We are optimistic about the positive impact of the strategic collaboration between FHD, MSSSID and the landowner. This collaboration capitalises on the extensive network of MSSSID's JV partner, who serves as the Executive President of the Malaysia JiangSu Entrepreneurs Business Association. According to management, this association actively interacts with businesses seeking to establish operations in Malaysia, with past engagements with JiangSu businesses yielding notably positive responses. This underscores the substantial potential of the proposed development.

Meanwhile, the landowner’s participation as a shareholder is expected to enhance credibility and confidence in the proposed development. We believe the staggered investment structure, beginning with the acquisition of 185 acres and an option for approximately 376.65 acres within four years, along with the upfront locking-in of the fixed land cost, serves to mitigate risk and provides growth opportunities without exert pressure on Mah Sing’s balance sheets and liquidity. In essence, the strategic collaboration with the landowner not only facilitates cost and risk sharing but also expedites approval processes, potentially leading to future collaborations on additional lands. It is noteworthy that the landowner still holds a remaining 326.13 acres of land in the same vicinity.

Overall, we are positive about the land deal as it offers the group an opportunity to broaden its development portfolio, expanding beyond its residential focus to include industrial projects. In fact, Mah Sing is no stranger to industrial development, considering its successful track record with the completion of five industrial parks to date. Four of these parks strategically reside in Selangor, namely, Mah Sing Integrated Industrial Park in Mutiara Subang, iParc in Bukit Jelutong, iParc 2 in Shah Alam, and iParc 3 in Bukit Jelutong. The fifth, Mah Sing iParc @ Port of Tanjung Pelepas, is in Johor Bahru. This latest acquisition will further strengthen Mah Sing's position in the industrial development sector, making a significant addition to its accomplished portfolio.

Impact

No change to our FY23-25 earnings forecasts for now, pending the completion of the acquisition. In terms of funding, Mah Sing's robust balance sheet with a net gearing of 0.13x and a cash balance of RM865mn as of September-23, positions the company well for more land acquisitions in the future. Factoring in the pending completion of recent land acquisitions with a total purchase consideration of RM652mn, we anticipate that Mah Sing's net gearing will comfortably stay below 0.3x.

Valuation

Mah Sing has expressed confidence in achieving its 2023 sales target of RM2.2bn, and anticipates that the 2024 sales target will surpass the total sales in 2023, driven by new launches and active land acquisitions. The continued success of the M series affordable homes is expected to bolster the group's sales prospects in 2024. Given this positive outlook, we raise our target P/Bk multiple to 0.75x from 0.6x and arrive at a new target price of RM1.19/share (previously RM0.95/share). We believe our target P/Bk is considered reasonable, especially when considering the stock's historical trading range of 0.8x-1.2x forward P/Bk during the previous upcycle in 2012-2013. We maintain our Buy recommendation on the stock.

Source: TA Research - 2 Feb 2024