Mah Sing - BUY - 30 May 2008

Mah Sing Group - 1Q08 within expectations (Results Note)



Price: RM1.50

Target Price: RM2.07

Recommendation: BUY



· 1Q08 net profit of RM22m was within our and market expectations, accounting for 22% and 20% of forecasted RM100m and 109m, respectively, for FY08E. Mah Sing Group Bhd (MSGB) in-line results are attributable to higher billings and take-up rates from Hijaun Residence, Aman Perdana (AP), Kemuning Residence (KR) and The Icon, Jalan Tun Razak (IconJTR).

· YoY, 1Q08 net profit grew 22%, from stronger 1Q08 property operating margins of 30% (1Q07: 23%). 1Q08 saw more billings from higher margin products; like KR with an average 25% operating margin compared to the Perdana (township) series with an average 20% margin. Furthermore, MSGB was able to lock-in lower construction cost for AP and KR as they were being constructed in advance because take-up rates were very promising during launches. Hence, MSGB was able to preserve high margins although raw material cost has escalated by some 10% YoY.

· QoQ, 1Q08 pretax profit increased by 5% to RM31m. Finance cost reduced by 21% QoQ to RM1.2m due to 5% QoQ decrease in borrowings to RM149m. Additionally, MSGB enjoyed an exceptional gain of RM0.5m from sale of scrap metals from demolishing the existing building on Southgate's site, which boosted operating income by 279% to RM1m.

· No revision in our FY08E net profit of RM100m, a 23% YoY growth. Even in these times of political and global economic uncertainties, which typically translate to the "wait-and-see" approach to property purchases, we are confident of our forecasts due to MSGB's locked-in en bloc sales of IconJTR and The Icon, Mont Kiara. Additionally, the scarcity of prime commercial space in the city makes MSGB's high margin commercial project, Southgate, a popular pick as the project is already registering strong sales (80% take-up rate for the Vivo block since launch in 15/3/08 to 31/3/08). Unbilled sales remain strong at RM1.1b, of which 84% is derived from the commercial properties segment.

· Target price of RM2.07 unchanged. FY08E and FY09E PER remains attractive at 9.3x and 6.8x, respectively. Maintain BUY.





KENANGA INVESTMENT BANK BERHAD (15678-H)

Mah Sing Group - BUY - 12 May 2008

Mah Sing Group - Cash is King! (Initiating Coverage)



Price: RM1.52

Target Price: RM2.07

Recommendation: BUY



· Plastics to property development. Mah Sing Group Bhd (MSGB) evolved from plastic injection moulding to a high growth property development company in 1994, which currently accounts for 95% of FY07 operating profit. The Main Board listed company has since sold some RM2.8b from its on-going projects in Klang Valley (KV) and Johor Bahru (JB).

· Strong balance sheets due to quick "turnaround" niche projects, with high cashflow generation. Hence, MSGB is able to quickly capitalize on different property cycles or command stronger bargaining power due to its strong cash position. For example, MSGB can 1) enhance margins through more "build and sell" products which command higher pricing 2) embark on aggressive landbanking. We estimate that MSGB can raise c.RM519m from cash and debt for land acquisitions or a potential overseas venture in Vietnam.

· Capitalizing on commercial properties' up-trend, which have fatter margins (pretax margins of 30% - 35% versus township's 20% - 25%) and faster project "turnarounds" compared to townships. MSGB was able to secure 3 en bloc sales worth GDV RM734m in 2007, with two towers of the The Icon at Jalan Tun Razak and The Icon at Mont Kiara to Kuwait Finance House (KFH), Autron Corp Ltd and Felda.

· Prefering en bloc commercial sales for better earnings visibility. Distinguished en bloc buyers like KFH, elevates MSGB reputation and increases further en bloc sale opportunities. Securing en bloc sales for The RM265m Southgate commercial project on Jalan Sungai Besi, will be a re-rating catalyst. We expect the commercial segment to account for 31% and 40% of FY08E and FY09E revenue.

· RM1.28b Southbay in Penang ensures geographical diversification. To hasten the time to market, MSGB intends to replicate its successful Residence and Legenda models that should appeal to the Penangites penchant for landed properties.

· Our target price of RM2.07 is based on our sum of parts RNAV on a fully diluted basis. We expect the commercial sector to underpin FY08E net profit YoY growth of 23% to RM100m, on the back of RM1b unbilled sales and RM706m new FY08 launches. We are also forecasting a 5.3% FY08E dividend yield with attractive FY08E and FY09E PER of 9.4x and 6.9x, respectively. Initiate with a BUY call.





KENANGA INVESTMENT BANK BERHAD (15678-H)