Mah Sing Buys 5.99 Acres of Freehold Land in Johor from S P Setia for RM156.8mn

Mah Sing announced that it has entered into a sale and purchase agreement with Pelangi Sdn Bhd, a subsidiary of S P Setia, for the proposed acquisition of 5.99 acres of freehold commercial land in Taman Pelangi, Mukim Plentong, Johor Bahru, for RM156.8mn (or RM600.90psf).

Prime Location in a Matured Township

The land comprises two contiguous parcels in the established Taman Pelangi township, Mukim Plentong (refer to Appendix 1 and 2), just 3 km from the Bukit Chagar RTS Link Station. Located within 10 km of Johor Bahru City Centre, the land offers excellent connectivity via major highways, including Jalan Tebrau (1.0 km), the EDL expressway (1.5 km), the North-South Expressway (7.0 km), the PG Coastal Highway, and the Pasir Gudang Highway. The land is a prime candidate for future development in a developing urban hub due to its strategic location, which is surrounded by educational institutions, medical facilities, retail hubs, and recreational amenities.

Mah Sing Plans a Premium Serviced Apartments Project with a GDV of RM1.5bn

The new development, named M Grand Minori, is planned with an estimated gross development value (GDV) of RM1.5bn, subject to regulatory approval. Branded as an upgraded addition to the M Series collection, M Grand Minori will offer premium, modern serviced apartments with prices starting at RM328,000, complemented by retail units. Designed to appeal to a wide demographic, the development is designed to attract first-time homeowners, upgraders from nearby townships, Malaysians working in Singapore, as well as Singaporean and other foreign buyers seeking quality and convenience. Aligned with Mah Sing’s quick turnaround strategy, an awareness campaign and registration of interest are set to launch in 2Q25. The project is expected to be developed over a span of four to five years.

Our View

1) Mah Sing (Buy, TP: RM2.41)

Reasonable Land Cost

The land cost of RM156.8mn represents 10.4% of the total GDV, which falls below the general rule of thumb of 20%. This indicates a favourable land cost-to-GDV ratio. Besides, the purchase price (RM600.80 psf) is just 2% higher compared to Maxim’s acquisition of a nearby 6.5-acre land parcel in Mar-24 from S P Setia as well, priced at RM589.30 psf. Considering these factors, the acquisition price is deemed reasonable.

Aligns With the Group’s Strategy

This acquisition aligns perfectly with Mah Sing’s strategy of securing prime locations in Greater Kuala Lumpur and Johor to strengthen its M-Series portfolio. M Grand Minori not only expands the Group’s footprint in Johor Bahru but also leverages the city's robust market outlook. For instance, Mah Sing’s recent launches, such as M Minori in Taman Seri Austin and M Tiara in Skudai, have achieved remarkable success, with international lots recording take-up rates of 99% and 100%. Key drivers for the Johor property market include major upcoming infrastructure projects like the Johor Bahru-Singapore RTS and the potential revival of the KLSingapore high-speed rail. Additionally, plans for the Johor-Singapore Special Economic Zone (JSSEZ) are expected to spur economic activity and draw more residents to Johor.

Expanding Presence in Johor

The proposed acquisition marks Mah Sing’s sixth land acquisition this year, adding a combined total potential GDV of up to RM5.8bn to its landbank – see Appendix 4. It is also the third acquisition in Johor Bahru, following the successful land acquisitions for M Tiara 2 and M Tiara 3 in Mukim Pulai. Following this acquisition, Mah Sing’s landbank will increase to 2,412 acres, with a remaining GDV of RM28.5bn.

Funding is Not an Issue

In terms of funding, Mah Sing's robust balance sheet with a net gearing of 0.2x and a cash balance of RM747mn as of Sep 2024, positions the company well for more land acquisitions in the future. According to the announcement, the acquisition is expected to be completed in the first half of 2025.

Forecast and Valuation

Overall, we are positive about this acquisition, given its strategic location and reasonable acquisition price (land cost to GDV ratio of 10.4%). No change to our earnings forecast pending the completion of the deal. Maintain Buy on Mah Sing with an unchanged TP of RM2.41/share, based on SOP valuation.

2) S P Setia (Buy, TP: RM1.94)

In Line with the Group’s strategy to Optimise Landbank

During the latest results briefing, S P Setia’s management reaffirmed its strategy of optimising its landbank by focusing on launching properties that cater to market demand within its established townships. In the Southern Region, the group is prioritising the transformation of its landbank into industrial estates, including eco-industrial parks and township developments.

This transaction aligns closely with S P Setia’s strategic objectives of rebalancing its landbank, transitioning to an asset-light model, and enhancing capital efficiency. We are optimistic about this move, as it highlights the group’s disciplined approach to executing its strategic plans. Notably, including this latest proposal, S P Setia has successfully monetised approximately RM1.7bn worth of land in FY23-24. According to the announcement, the proceeds from the sale will be utilised for debt repayment, working capital, and accelerating investments in strategic projects.

The group’s focused efforts have also yielded significant progress in deleveraging. We estimate that with this disposal, its net gearing ratio will improve to 0.34x from 0.35x as of September 2024, further reducing from 0.41x in June 2024 and substantially lower than the 0.61x recorded in 2021. This reflects S P Setia’s commitment to maintaining financial discipline and strengthening its balance sheet.

Forecast

According to the announcement, the proposed land sale is projected to generate an estimated gain of RM107.8mn. Together with ongoing projects and anticipated additional land monetisation, this disposal is expected to play a vital role in supporting S P Setia’s profit growth assumptions for FY25, as detailed in our results briefing update on 27 November 2024. However, we are maintaining our earnings forecasts for now, pending the completion of the disposal, which is targeted for 1H25.

Valuation

Maintain Buy on S P Setia with an unchanged TP of RM1.94/share, based on CY25 P/Bk multiple of 0.7x and a 3% ESG premium.

Source: TA Research - 20 Dec 2024