Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Vol m Company Update, Mah Sing (MSGB MK) Neutral (Maintained) Property - Real Estate Target Price: MYR2.44 Market Cap: USD947m Price: MYR2.20 Entering New Growth Area In Penang Mainland Macro Risks Growth Value 3.0 2.8 2.6 Price Close Mah Sing (MSGB MK) Relative to FTSE Bursa Malaysia KLCI Index (RHS) 162 152 142 We raise our FV to MYR2.44. Mah Sing is acquiring a 76.4-acre land in Jawi for MYR42.6m. We consider the land cost, at MYR12.80 psf, as reasonable given its location opposite the Bukit Jawi Golf Resort and about 30 min to Penang Second Bridge. Although we are positive on the purchase, we remain Neutral on the stock as the cooling measures announced by the state government will delay the sector s recovery. 2.4 2.2 2.0 1.8 1.6 1.4 16 14 12 10 8 6 4 2 132 122 112 102 92 82 Venturing into Penang mainland. Mah Sing has announced the acquisition of 76.4 acres of freehold land in Jawi for a purchase consideration of MYR42.6m. The acquisition was expected given that the bigger players such as Ecoworld and IJM Land (IJMLD MK, BUY, FV: MYR3.70) all bought land parcels in Seberang Perai Selatan this year. Mah Sing s land is now planted with oil palm trees while some areas are being occupied by a poultry farm. According to management, 63 acres of the land is of Grade A status, while the remaining 13 acres will require a conversion premium of about MYR1.1m (or about MYR2 psf). Players snapping up land. We deem the land cost of MYR12.80 psf reasonable considering the location of the land, compared with Ecoworld s land in Jalan Paboi (purchased at above MYR30 psf) and IJMLD s land near Jawi Toll (MYR18.50 psf). Mah Sing s land is about 15 min from the Jawi Toll and 30 min to the Penang Second Bridge. Source: Bloomberg Avg Turnover (MYR/USD) 4.60m/1.55m Cons. Upside (%) 32.7 Upside (%) 10.9 52-wk Price low/high (MYR) 1.55-2.79 Free float (%) 48 Shareholders (%) Tan Sri Leong Hoy Kum 35.1 EPF 9.2 Felda 7.4 Shariah compliant Loong Kok Wen CFA +603 9207 7614 loong.kok.wen@rhbgroup.com Southbay East worth MYR400m. The company s acquisition is timely given that the Second Bridge will open in 1Q14. The proposed development, which will be named Southbay East, has an estimated GDV of MYR400m and will be developed over a 3-4 year period. The indicative pricing for the project s linked houses is less than MYR500k. Maintain NEUTRAL. We make no changes to our earnings forecasts as first launch is targeted in 1H15. Given the incremental value in our RNAV estimate, we raise our FV slightly to MYR2.44 (from MYR2.42), based on an unchanged 15% discount and maintain our Neutral rating on the stock. The Penang state government has just announced more housing policies such as the 2% levy on properties sold within three years, and limiting the sale of affordable houses (<MYR400k on the island and <MYR250k on the mainland) only to eligible first-time home buyers in the state housing department s list of registered buyers within the first five years. While the impact is not significant, the imposition of more cooling measures will delay the recovery in property buyers sentiment. Forecasts and Valuations Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total turnover (MYRm) 1,110 1,571 1,775 2,193 2,928 Reported net profit (MYRm) 118 169 231 279 375 Recurring net profit (MYRm) 118 169 231 279 375 Recurring net profit growth (%) 23.7 42.8 36.8 20.9 34.6 Recurring EPS (MYR) 0.14 0.20 0.28 0.26 0.28 DPS (MYR) 0.06 0.08 0.08 0.08 0.10 Recurring P/E (x) 15.5 10.9 7.9 8.6 7.9 P/B (x) 1.99 1.70 1.47 1.53 1.53 Dividend Yield (%) 2.6 3.8 3.4 3.8 4.4 Return on average equity (%) 13.4 16.9 19.9 19.9 21.4 Return on average assets (%) 6.4 6.8 7.2 7.6 9.0 Net debt to equity (%) 20.8 28.3 25.3 30.2 27.2 Our vs consensus EPS (%) 0.0 0.0 See important disclosures at the end of this report Powered by Enhanced Datasystems EFA TM Platform 1
Mah Sing (MSGB MK) Figure 1: Location of Southbay East Source: Company See important disclosures at the end of this report 2
Mah Sing (MSGB MK) Figure 2: Mah Sing s RNAV Projects Type Remaining land Remaining GDV Stake NPV @ 11% (acres) (MYR m) Klang Valley Southgate Commercial 0 2.0 100% 0.2 Icon City PJ Commercial 12 2,522.0 100% 203.5 Star Avenue Commercial 0 127.0 100% 16.0 D'sara Sentral Commercial 7 800.0 100% 70.9 i-parc 3@ Bukit Jelutong Industrial 0 27.0 100% 3.5 One Legenda Residential 0 33.0 100% 4.2 Hijauan Residence Residential 25 226.0 100% 25.1 Aman Perdana Residential 54 101.0 100% 10.6 Garden Residence Residential 13 188.0 100% 21.3 Perdana Residence 2 Residential 4 15.0 100% 1.5 M Suites @ Jln Ampang Residential 0 16.0 100% 1.8 Bayu Sekamat Residential 4 10.0 100% 1.0 Icon Residence MK Residential 0 384.0 100% 32.6 Garden Plaza, Cyberjaya Residential 0 175.0 100% 21.3 Kinrara JV Residential 0 10.0 100% 1.0 Kinrara Residence Residential 31 245.0 100% 24.0 M City Jln Ampang Residential 0 753.0 100% 67.1 M Residence 1 @ Rawang Residential 191 781.0 100% 94.9 M Residence 2 @ Rawang Residential 157 650.0 100% 79.0 M Residence 3 @ Rawang Residential 96.7 520.0 100% 49.6 Southville City Bangi Residential 420 5,130.0 100% 502.0 MSIIP @ Shah Alam Residential 3 155.0 100% 13.8 Lakeville Residence Commercial 12 1,150.0 100% 106.4 Source: Company, RHB estimates Johor Sri Pulai Perdana Residential 53 56.0 100% 5.4 Austin Perdana Residential 28 145.0 100% 14.1 Sierra Perdana Residential 117 218.0 100% 21.2 Sri Pulai Perdana 2 Residential 19 66.0 100% 6.8 Mah Sing i-parc Industrial 182 636.0 100% 74.7 Meridin @ Medini Commercial 8 1,100.0 100% 110.2 Bandar Meridin East Mixed township 1,352 5,000.0 100% 380.1 Penang Residence @ Southbay Residential 0 1.0 100% 0.1 Legenda @ Southbay Residential 11 193.0 100% 23.0 Icon Residence, Georgetown Residential 3 280.0 100% 29.5 Ferringhi Residence Residential 57 798.0 100% 84.1 Southbay City Commercial 28 1,872.0 100% 206.0 Southbay East Residential 76.4 400.0 100% 43.2 Sabah Sutera Avenue Commercial 2 373.0 100% 46.0 KK Convention City Commercial 9 1,400.0 51% 62.9 Total 2,458.7 Unbilled sales 495.0 Shareholders' fund (incl. rights) 1,642.6 Warrants proceeds 332.8 Total RNAV 4,929.1 Share base (incl. rights and bonus) 1,344.5 Warrants 168.1 CB 207.0 Total share base 1,719.5 FD RNAV/share 2.87 Discount 15% Fair value 2.44 See important disclosures at the end of this report 3
Mah Sing (MSGB MK) Financial Exhibits Profit & Loss (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total turnover 1,110 1,571 1,775 2,193 2,928 Cost of sales (792) (1,139) (1,252) (1,527) (2,049) Gross profit 318 432 523 667 880 Gen & admin expenses (133) (197) (228) (256) (335) Other operating costs (9) (4) 13 (10) (8) Operating profit 176 232 308 400 537 Operating EBITDA 187 246 326 434 572 Depreciation of fixed assets (11) (15) (18) (33) (35) Operating EBIT 176 232 308 400 537 Interest income 4 10 10 5 6 Interest expense (3) (3) (2) (4) (3) Pre-tax profit 178 239 316 401 540 Taxation (49) (70) (84) (108) (146) Minority interests (10) (0) (1) (14) (19) Profit after tax & minorities 118 169 231 279 375 Reported net profit 118 169 231 279 375 Recurring net profit 118 169 231 279 375 Cash flow (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Operating profit 176 232 308 400 537 Depreciation & amortisation 11 15 18 33 35 Change in working capital (386) (205) 196 (602) (348) Other operating cash flow (59) (19) (13) 18 (28) Operating cash flow (258) 23 508 (151) 196 Interest received 4 10 10 5 6 Interest paid (3) (3) (2) (4) (3) Tax paid (49) (70) (84) (108) (146) Cash flow from operations (306) (40) 433 (258) 53 Capex (62) (68) (397) - (138) Other investing cash flow 46 (20) (54) 74 - Cash flow from investing activities (16) (89) (450) 74 (138) Dividends paid (47) (69) (62) (90) (131) Proceeds from issue of shares 3 54 3 - - Increase in debt 287 471 (67) - - Other financing cash flow (9) 30 68 36 211 Cash flow from financing activities 234 486 (58) (54) 80 Cash at beginning of period 397 309 666 589 351 Total cash generated (88) 357 (76) (239) (5) Implied cash at end of period 309 666 589 351 346 See important disclosures at the end of this report 4
Mah Sing (MSGB MK) Financial Exhibits Balance Sheet (MYRm) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Total cash and equivalents 309 666 589 351 346 Inventories 1,228 1,580 1,925 2,283 2,888 Accounts receivable 426 356 398 511 682 Other current assets 6 6 7 25 - Total current assets 1,968 2,607 2,919 3,170 3,916 Tangible fixed assets 160 213 592 485 588 Intangible assets 0 0 13 13 13 Total other assets 10 30 72 72 72 Total non-current assets 170 244 676 569 672 Total assets 2,138 2,850 3,595 3,739 4,588 Short-term debt 135 39 40 46 6 Accounts payable 671 736 1,314 1,202 1,605 Other current liabilities 21 32 39 39 39 Total current liabilities 827 808 1,394 1,286 1,650 Total long-term debt 369 935 866 785 879 Other liabilities 6 19 80 80 80 Total non-current liabilities 375 954 946 865 959 Total liabilities 1,201 1,762 2,340 2,152 2,608 Share capital 547 547 420 549 679 Retained earnings reserve 376 497 654 843 1,087 Other reserves (3) 29 171 171 171 Shareholders' equity 919 1,073 1,245 1,563 1,937 Minority interests 18 15 10 24 43 Other equity 0 (0) 0 (0) - Total equity 936 1,088 1,255 1,588 1,980 Total liabilities & equity 2,138 2,850 3,595 3,739 4,588 Key Ratios (MYR) Dec-10 Dec-11 Dec-12 Dec-13F Dec-14F Revenue growth (%) 58.8 41.5 13.0 23.5 33.5 Operating profit growth (%) 22.7 31.2 32.9 30.1 34.1 Net profit growth (%) 25.2 42.8 36.8 20.9 34.6 EPS growth (%) 25.2 42.8 36.8 (7.6) 8.9 Bv per share growth (%) 8.7 16.8 16.0 (4.0) 0.3 Operating margin (%) 15.9 14.7 17.3 18.3 18.3 Net profit margin (%) 10.6 10.7 13.0 12.7 12.8 Return on average assets (%) 6.4 6.8 7.2 7.6 9.0 Return on average equity (%) 13.4 16.9 19.9 19.9 21.4 Net debt to equity (%) 20.8 28.3 25.3 30.2 27.2 DPS 0.06 0.08 0.08 0.08 0.10 Recurrent cash flow per share (0.37) (0.05) 0.52 (0.24) 0.04 See important disclosures at the end of this report 5
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Mah Sing (MSGB MK) SWOT Analysis Fast turnaround model to unlock land value Competition from other developers Acquisition of new landbank in strategic areas Potential constraints in working capital due to a large number of ongoing projects P/E (x) vs EPS growth P/BV (x) vs ROAE 20 18 16 14 12 10 8 6 4 2 0 50% 43% 36% 29% 22% 15% 8% 1% -6% -13% -20% 2.5 2.0 1.5 1.0 0.5 0.0 25% 20% 15% 10% 5% 0% P/E (x) (lhs) EPS grow th (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile Mah Sing has many projects across the key states in Malaysia. The company, which adopts a fast turnaround model in property development, has both niche and township projects to underpin its earnings. See important disclosures at the end of this report 6
2.28 3.75 2.40 2.50 2.93 1.55 2.31 2.31 2.10 2.43 3.70 NR 2.06 2.33 2.43 3.03 3.15 2.90 2.25 1.47 1.80 2.00 2.25 2.20 2.42 2.50 2.58 2.11 2.48 2.42 Mah Sing (MSGB MK) Recommendation Chart Price Close 3.2 Recommendations & Target Price 2.7 2.2 2.10 2.31 1.7 1.2 Buy Neutral Sell Trading Buy Take Profit Not Rated 0.7 Dec-08 Mar-10 Jun-11 Sep-12 Source: RHB estimates, Bloomberg Date Recommendation Target Price Price 2013-10-02 Neutral 2.42 2.31 2013-08-28 Neutral 2.42 2.08 2013-05-30 Buy 3.75 2.75 2013-05-29 Buy 3.70 2.79 2013-05-20 Trading Buy 2.48 2.66 2013-02-28 Neutral 2.11 1.75 2013-01-07 Neutral 2.43 1.60 2012-12-13 Neutral 2.43 1.60 2012-11-19 Neutral 2.58 1.73 2012-10-19 Neutral 2.50 1.73 Source : RHB estimates, Bloomberg See important disclosures at the end of this report 7
RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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