Mah Sing has acquired 100.4 acres of freehold land in Johor Bahru for RM103.8mn, marking its second land acquisition in 2024. This newly acquired land is planned for a township development featuring landed homes, serviced apartments, and shops, which is expected to generate an estimated GDV of RM1.45bn. Overall, we are optimistic about the proposed acquisition, given its strategic location and reasonable acquisition price. We raise our TP to RM1.57, based on a higher target CY25 P/Bk multiple of 1.0x. This valuation falls within the stock's upcycle valuation band, which ranges between 0.8x-1.2x. Maintain a Buy call on the stock.

Buying 100.4 Acres of Freehold Land in Johor Bahru for RM103.8mn

Mah Sing announced that it had entered into a conditional sales and purchase agreement with Amanah Raya Bhd for the proposed acquisition of 100.4-acre freehold land in Mukim Pulai, Johor Bahru for RM103.8mn (or RM23.70 psf). This acquisition follows Mah Sing’s previous purchase of 75.7-acre freehold land, named M Tiara, from the same vendor in June 2023 for RM76.1mn. Notably, the newly acquired land is located approximately 400 meters away from the M Tiara site.

A Mature Neighbourhood With Readily Available Amenities

Much like its predecessor M Tiara, the upcoming M Tiara 2 development is nestled in the vibrant neighbourhoods of Mutiara Rini and Lima Kedai. With easy access to main roads like Jalan Gelang Patah, Jalan Skudai, and Jalan Pontian, as well as major highways such as the Singapore-Malaysia Second Link Expressway and the North-South Expressway, the site is highly accessible and within a short drive of Stadium Sultan Ibrahim.

The area is also close to a range of retail and recreational facilities, such as Lotus's Mutiara Rini, Mydin Mall, Aeon Taman Universiti, Aeon Bukit Indah, Lotus's Bukit Indah, Hutan Bandar Majlis Bandar Iskandar Puteri, Impian Emas Golf, and Pulai Spring Golf. This exceptional blend of connectivity and amenities renders the site ideal for crafting a township tailored to the discerning needs of both first-time homeowners and those seeking to upgrade from nearby mature townships.

Township Development With a Potential GDV of RM1.45bn

The preliminary plan outlines that M Tiara 2 has a potential GDV of around RM1.45bn. Positioned as an upgraded version of the M Tiara development, M Tiara 2 is slated to become a township offering larger, and low-density landed residential units alongside serviced apartments and double-storey shops. The indicative built-up areas are expected to be 22'/24'x70' for terrace homes and 34'x70'/75' for cluster homes, with an indicative starting price of RM771,600.

Additionally, there will be serviced apartment development with units tentatively priced from RM253,000. The management anticipates launching a preview of this project, with registration of interest slated for the first quarter of 2025.

Positive on the Deal

The land cost of RM103.8mn represents 7.2% 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 (RM23.70psf) is comparable to Mah Sing's previous acquisition of 75.7-acre land in the same vicinity for the development of M Tiara at an acquisition price of RM23.10psf. Considering these factors, the acquisition price is considered reasonable.

This land acquisition aligns with Mah Sing's strategy of acquiring prime locations in Greater Kuala Lumpur, Penang, and Johor to expand its M-Series projects. Additionally, the swift decision to acquire this adjacent land near M Tiara within a year reflects Mah Sing’s strategic response to anticipated growth in Johor's property market, driven by upcoming infrastructure projects like the Johor Bahru-Singapore Rapid Transit System (RTS) and potential revival of the KLSingapore high-speed rail. Additionally, the development plan for the JohorSingapore Special Economic Zone (JS-SEZ) is expected to stimulate economic activity, attracting more residents to Johor.

The added advantage of the strong Singapore dollar creates an opportune market landscape for M Tiara 2. The evident demand is seen in the remarkable sales of M Minori in Taman Seri Austin, with Tower A selling out its 252 nonBumiputera units over a single weekend in November 2023. Likewise, M Tiara attracted over 5,000 registrants within 10 months for its 754 units of doublestorey terrace and cluster homes. With such promising demand indicators, we believe M Tiara 2 is well-positioned to capitalise on potential spillover demand from M Minori and M Tiara.

Following this acquisition, Mah Sing’s landbank will increase to 2,478 acres, with a remaining GDV of RM26.1bn. In terms of funding, Mah Sing's robust balance sheet, with a net gearing of 0.08x and a cash balance of RM981mn as of December 2023, positions the company well for more land acquisitions in the future.

Further Upside to the 2024 Sales Target of RM2.5bn

Mah Sing has expressed confidence in achieving its 2024 sales target of RM2.5bn, driven by new launches and active land acquisitions. We expect the consistent success of the M series affordable homes to bolster the group's sales prospects in 2024. The impressive take-up rate exceeding 90% for Mah Sing's new launches in 2023 underscores the strong demand for affordable housing in urban areas. Additionally, we expect further upside for its 2024 target with the acceleration of launches for its industrial park in Sepang, fuelled by strong interest from both domestic and overseas industrialists.

Impact

We raise our FY24/FY25/FY26 earnings forecasts by 1%/7%/10% respectively, after factoring in our revised sales assumptions of RM2.6bn/RM2.8bn/RM3.0bn up from RM2.5bn p.a. previously. These adjustments primarily reflect the increased demand for the company's new industrial products in Sepang and residential properties in Johor.

Additionally, we have adjusted for a larger share base (+5.5%) to accommodate the conversion of the RM100mn Redeemable Convertible Sukuk Murabahah, with a conversion price of RM0.755. According to a filing with Bursa, sukuk holders had already converted RM50mn worth of sukuk into Mah Sing shares on 29 March. Given that the conversion price is significantly below the current market price, we anticipate further conversions of the remaining sukuk by the holders.

Valuation

We believe the ongoing rally in property counters share prices has further potential due to strong demand, favourable market conditions and positive investor sentiment. Considering the favourable outlook, we raised our target P/Bk multiple to 1.0x from 0.75x and arrived at a new target price of RM1.57/share (previously RM1.24/share). We believe our target P/Bk is not excessive, especially 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 for the stock.

Source: TA Research - 8 Apr 2024