Land-banking initiatives positive for Mah Sing

It’ll help boost property developer’s future earnings

PETALING JAYA: Mah Sing Group Bhd’s land-banking initiatives could help boost the property developer’s future earnings.

According to analysts, the property development company has the financial strength to expand its land bank for future projects, given the solid balance sheet and robust cashflow. This should improve the outlook of the company.

“While property sales have weakened, we believe Mah Sing’s strengthening balance sheet should support decent land-banking activities this year,” RHB Research Institute said in a report.

“We believe downside risks to property sales and hence earnings are priced in, and strategic land banking should help drive future earnings,” the brokerage added, noting that Mah Sing’s balance sheet strengthened last year, with only 2% net gearing.

While RHB Research remained “neutral” on Mah Sing, the research house raised the target price for the counter to RM1.57 from RM1.46 previously based on an unchanged 35% discount to revalued net asset value.

At current levels, KAF-Seagroatt & Campbell Securities said the counter was traded at a depressed 48% discount to the net asset value of RM2.81.

“We believe the steep discount is unwarranted, given its strong balance sheet, entrepreneurial management team and a stable dividend policy,” the brokerage noted.

“We believe Mah Sing is still the best proxy to robust residential demand in the country,” it added.

KAF-Seagroatt has maintained a “buy” recommendation on Mah Sing, with an unchanged target price of RM1.80. It noted that Mah Sing demonstrated strong improvement in its balance sheet, with cash of RM924mil and debt of about RM1bil as of end-financial year ended Dec 31, 2016 (FY16).

“It is very under-geared when compared to its shareholder funds of RM3.3bil. Also, about RM607mil final stage billings on completing parcels expected in FY17 should further strengthen its balance sheet,” KAF-Seagroatt said.

“Armed with a stronger balance sheet, we believe Mah Sing may soon embark on its land-banking initiatives to drive NAV growth,” it added.

KAF-Seagroatt said Mah Sing’s strong balance sheet should also assuage concerns over its seemingly high unsold inventory.

Mah Sing’s completed but unsold inventory stood at around RM300mil. However, its unsold work-in-progress stock was significantly higher at around RM1.4bil.

“The group is taking concrete steps to liquidate its unsold stocks as evident from its recent ‘Lock and Roll’ home ownership campaign,” KAF-Seagroatt said.

Mah Sing recently cut its 2017 sales target to RM1.8bil from RM2.3bil previously. Last year, it sold RM1.78bil worth of properties.

RHB Research said: “The cautious stance is in line with industry peers ... new launches focusing on the affordable product range should help the company meet this year’s sales target of RM1.8bil.”

Mah Sing’s earnings had more than doubled from just RM170mil in FY11 to RM361mil in FY16, representing an earnings compounded annual growth rate of more than 25%.

“At the current elevated earnings level, we believe the high growth phase may be over.

“In our opinion, Mah Sing is moving into a more sustainable steady growth phase, characterised by modest earnings growth but with lower balance sheet risk,” KAF-Seagroatt said.

“A flatter growth trajectory may not be necessarily bad, particularly if management embrace capital management to return surplus cash to shareholders,” it added, noting that Mah Sing remained committed to delivering a dividend policy of at least 40% of earnings.