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Saturday February 2, 2013

Mah Sing has the eye for big deals

By TEE LIN SAY
linsay@thestar.com.my


Artist impression of Mah Sing’s semi-detached units at M Residence, Rawang. Artist impression of Mah Sing’s semi-detached units at M Residence, Rawang.

MAH Sing Group Bhd group managing director Tan Sri Leong Hoy Kum has just come back from a four-day retreat in Koh Samui. He's looking dapper and his eyes are gleaming with energy.

He apologises for being unable to take us out for lunch as he wants to continue fasting for the remaining week. His holiday wasn't a typical food feast dotted with long periods of winding down.

“I lost 2 kgs! See how loose my pants are,” says Leong as he shows how his pants now hangs copiously on his new slimmer waistline.

For Leong, being healthy is just as important as realising his vision of making Mah Sing the next Cheung Kong Holdings of Malaysia. Cheung Kong belongs to Hong Kong tycoon Li Ka-shing and is one of the largest property developers in Hong Kong.

As it is, Mah Sing currently has 40 projects and is Malaysia's second-largest developer by sales value.

To realise the Cheung Kong vision, which Leong hopes to achieve within the next 10 years, Leong realises he needs to be fit, alert and energetic. Yes, just like Top Glove Bhd's managing director Tan Sri Lim Wee Chai, Leong wants to live to a 100 years of age.

“Being a Cheong Kong means expanding and buying more land. I am always preparing for the future. We do not over-expand our capacity. We have the financial muscle to do that. For example, expanding into Johor. We had done thorough research and know who we want to target. We are not simple,” says Leong.

Not simple indeed. That certainly sums up Leong, who is not easily swayed by other property developers who have gone to foreign countries to launch properties.

Leong: ‘Looking at the right land at the right time is also an art’. Leong: ‘Looking at the right land at the right time is also an art’.

“For now, we will remain focused on Malaysia and we are kept extremely busy with 40 ongoing projects here. While we are focused on our domestic projects, we attract both Malaysian and international buyers, which is why we are starting our sales galleries overseas. We will definitely explore (going overseas) on a longer term basis should any good opportunities come up. It is not necessarily just the United Kingdom; it can be Singapore, Jakarta or Shanghai,” says Leong.

Mah Sing's current customer base comprises mainly Malaysians living in the country as well as those working overseas. Foreign purchasers make up under 10% of its sales. Even so, Mah Sing has exceeded the RM2bil sales mark for two consecutive years from 2011 to 2012. With its new project roll-outs for 2013, Leong expects that to increase by 15% to 20%.

Its closest competitor, S P Setia achieved record-breaking sales of RM4.23bil for its financial year ended Oct 31, 2012 and is setting itself a target of RM5.5bil for this financial year.

Meanwhile, Mah Sing is targeting to achieve total sales of RM3bil this year, which is a 20% growth from RM2.5bil the previous year.

Just a few weeks ago, Mah Sing Group received “overwhelming” response for its 69 units of luxury Aspen bungalows, which the company is promoting on a build-then-sell concept. The units, located within the 60.75ha Garden Residence in Cyberjaya, were launched last week. Priced from RM3.88mil, the 3.5-storey Aspen bungalows in Precinct 4 sits on comfortable lot sizes of 60' x 90' and have spacious built-up areas of 7,796 sq ft.

These are unique bungalows with 9+1 bedrooms that are 3.5 storeys and come equipped with a lift.

“We build things with practicality and style in mind. This bungalow can fit in all generations of a family. Previously, the older parents have to live on the ground floor. Now, with the lift, they can stay upstairs. There is privacy for all, as everyone can stay on a separate floor. Your in-laws can stay downstairs,” explains Leong.

He adds: “Nowadays, selling property is about selling an environment. Even when we do affordable housing, we do it with style. Property development is more art than science. Land acquisition and knowing what the market wants is more of an art. Looking at the right land at the right time is also an art.”

Thus, on his property outlook, Leong says that he is still selectively optimistic about certain sectors as property is acknowledged as the best hedge against inflation.

“People buy properties as a form of wealth preservation and not speculation and we believe there will be strong demand for serviced apartments from 500 sq ft and landed properties below RM1mil in good schemes.

“When I say good schemes, I refer to well-located projects with easy access and amenities or schemes that are mature,” says Leong.

An exciting 2013

CIMB research head Terence Wong is expecting Mah Sing to meet its new sales target for its financial year ended Dec 31, 2012 of RM2.5bil almost spot on.

“This is the group's best-ever performance and is 11% higher year-on-year. Compared with 2007, just before the global financial crisis, new sales have more than tripled,” says Wong.

Apart from targeting total sales of RM3bil this year, unbilled sales of RM2.95bil is 2.2 times its financial year 2011 property segment revenue.

Mah Sing's product range also spans the entire range from affordable housing to premium upmarket homes, high-rise units, commercial properties and industrial properties.

Aspen Bungalows are slated for completion in mid-2013. Aspen Bungalows are slated for completion in mid-2013.

For the nine months ended Sept 30, 2012, Mah Sing's net profit rose 37% to RM175.2mil while revenue was up 16% to RM1.3bil from the previous period.

For this year, Leong is launching six new projects which consist of Southville City and M Residence 2 in the Klang Valley, Ferringhi Residence in Penang island, Mah Sing iParc@Tanjung Pelepas and The Meridin@Medini which are located in Iskandar Malaysia and Sutera Avenue in Kota Kinabalu. He says some 77% of sales will come from landed residential projects and niche size high-rise projects

Leong is particularly excited about the RM3.63bil Southville City project in Bangi, a 420-acre township which Leong is hoping to develop from scratch over the next five to seven years and transform it into the next thriving township of Puchong, Cheras and Kota Damansara.

New sales in 2013 will be anchored by the group's new flagship township, the RM3.63bil Southville project in Bangi, where the group is launching RM1.2bil to RM1.3bil worth of properties this year.

So far, Mah Sing has received some 7,000 registrants for the township, and many have been attracted by the affordable pricing for its residential properties. Three-storey superlink houses will be priced from RM760,000 onwards and 2- to 3-bedroom apartments priced at below RM300,000 and from RM208,000 onwards.

Besides the six new projects, the main launches for 2013 will come from Icon City Petaling Jaya, M Residence 1 in Rawang, Garden Residence and Garden Plaza in Cyberjaya and M City in Jalan Ampang.

Mah Sing is targeting to achieve 62% of total sales from its projects in the Klang Valley, 20% from Johor, 13% from Penang and 5% from Sabah.

Leong says Mah Sing is extremely keen to tender for jobs on the Rubber Research Institute (RRI) land once tenders are opened. Last August. Kwasa Land Sdn Bhd, a wholly owned subsidiary of the Employees Provident Fund, announced it had finalised the purchase price of RM2.28bil for 2,330 acres of prime RRI land in the Klang Valley. It is the master developer for this township.

Kwasa Land had mentioned that the proposed township development is expected to create abundant opportunities for developers and contractors to participate in developing residential and commercial properties, main infrastructures and public amenities for an expected population of 150,000.

Mah Sing's gearing level has been an issue of concern for many in the investing fraternity but Leong feels those fears are unfounded. As of Sept 30, 2012, Mah Sing has some RM545.3mil in its coffers.

An artist’s impression of Mah Sing’s Ferringhi Residence project in Penang. An artist’s impression of Mah Sing’s Ferringhi Residence project in Penang.

In December, Mah Sing proposed a renounceable rights issue of new shares with free warrants to its shareholders to raise gross proceeds of RM400mil to finance its operations and business expansion. The entitlement basis, date and issue price have yet to be determined.

Leong says Mah Sing is planning up to 0.5 times net gearing post-rights issue in the first quarter of 2013 as it is eyeing new strategic landbank.

“We are certain we will not gear up beyond 0.5 times. Our gearing level now stands at 0.3 times. We have cashflow from our ongoing projects and each of our projects has a 60%-80% takeup rate before we start development works. For this financial year, we are receiving some additional RM228mil from the delivery of vacant possession of our tail-end properties, over and above our existing billings,” he says.

Hong Leong Investment Bank Bhd analyst Sean Lim feels the company is handling its gearing level well, with support provided from a rights issue in December and favourable land payment terms.

Lim estimates that the expected RM400mil proceeds from the rights issue would help bring down net gearing from 0.3 times to 0.22 times currently.

“On top of the proceeds, the additional RM440mil gearing headroom (before gearing hits 0.5 times post-placement) would easily generate RM4bil of new gross development value, conservatively speaking,” Lim says.

Aside from that, Mah Sing is seeking favourable payment terms for its upcoming land acquisitions via joint ventures or prolonged payment periods of four to five years.

Lim notes that the move to seek favourable payment terms and joint ventures could be a good move to mitigate high gearing as sectoral headwinds could cause landowners to become more reasonable in their asking prices.

“In terms of landbanking, Mah Sing beat its target of RM5bil GDV worth of projects last year by around RM900mil and believes it should do better this year. Mah Sing's ability to execute is one of the best in the sector and its earnings prospects remain positive given the high unbilled sales of RM2.95bil, rising annual new sales and aggressive landbanking,” says Wong.

The appeal of Johor

The influx of interest into Johor property has become even more evident.

“The Iskandar region is developed mainly for Singaporeans,” says one investment banker from Singapore, who just bought a bungalow from one of the developers there.

“In Singapore, we don't have space. So here in Johor, we can afford to buy huge landed properties at such cheap prices,” he says.

Singaporean property buyers are feeling the heat even more in recent times. Singapore has imposed more measures to curb speculation on residential and industrial properties after home prices climbed to a record high. Some analysts, including the investment banker, feels that the curbs will fuel demand for Johor properties.

Some of the measures introduced include stamp duty for buyers, which has been increased by between five and seven percentage points. Permanent residents will have to pay the additional tax when they buy their first home while Singaporeans will have to pay the levy from their second purchase onwards.

While Leong is not revealing all of his cards just yet, he does tell StarBizWeek that he has a vision of becoming the largest lifestyle developers in the Iskandar Development Region (IDR) with a minimum gross development value (GDV) of at least RM5bil over the next few years.

In the Iskandar area, the three main areas of economic focus include Nusajaya, Medini and Danga Bay. Leong is of the opinion that all three areas will thrive, and each is already attracting its own niche market.

For Mah Sing, the target is clear. Just like Southville City in Bangi, which is targeting students from the 20 educational institutions in that area, Leong is targeting the students in Educity, Nusajaya.

The educational institutions in Educity include University of Reading from the United Kingdom, the Newcastle University Medicine Malaysia, the University of Southampton Malaysia campus, the Netherlands Maritime Institute of Technology, Raffles University Iskandar and Marlborough College Malaysia.

Leong says response for his Johor properties has been immense and the company is getting serious queries from Singaporeans, South Koreans, Japanese and Indonesians.

With all such feedback, Leong is not wasting any time and will be opening his sales gallery in Singapore after the Chinese New Year celebration.

“We will be organising buses to bring over interested buyers to view our sales gallery in the Iskandar region. We want to do this in a big way,” says Leong.

Currently, Mah Sing has five projects in Johor worth RM2.29bil.

The two new projects to be launched this year are Meridin@Medini, which is an RM1.1bil integrated project in the middle of the Medini special zone in Iskandar Malaysia, and 20 minutes from Singapore via the Second Link.

The other project is Mah Sing's i-Parc, which is currently the only sizeable freehold industrial project neighbouring the Port of Tanjung Pelepas.

Mah Sing i-Parc has a free-zone status, making it a premier industrial location, says Leong.

Undemanding valuations

Wong says Mah Sing's valuations remain undemanding with forward price earnings ratios of 5 to 6 times and a dividend yield of around 5%. He has a “neutral” call and target price of RM2.14 based on unchanged 20% discount to revised net asset value, which factors in the dilutive impact from the proposed rights issue.

UBS Investment research head Chris Oh expects another record year for Mah Sing which he views as the best property stock in the sector as the company is entrepreneurially managed with ambitious plans to grow within Malaysia. Another factor is the company's aggressive sales targets which it has delivered in the past.

“We continue to like Mah Sing for its entrepreneurial management team and high asset turnover business model. The company recently announced a record sales target for 2013 of RM3bil (which is a 20% year-on-year increase) and anticipates further landbank acquisitions through financing via a proposed RM400mil rights issue to be completed by the first half of 2013. The past five-year sales and net earnings compounded growth were 23.1% and 28% respectively. Our view is that Mah Sing will deliver some 20% sales and earnings growth based on its diversified range of products,” says Oh.

Oh feels the stock's valuations look attractive as Mah Sing's shares are trading at a 12-month forward PE of 6 times with a dividend yield of over 6%. He has a “buy” call and target price of RM2.80, which is based on a 30% discount to their sum-of-the-parts revised net asset value of RM3.99.

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Gearing to expand overseas

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