ZLBT Random Stock Pick >>> MAHSENG 8583

Valuation : Revise BUY Target >>> RM3.32

We raise our discounted free cash flow valuation to RM3.32/share from RM3.27/share previously, based on a cost of equity of 9.8%. Maintain Buy.


Land acquisitions
Mah Sing has entered into nine separate sale and purchase agreements for the proposed acquisition of nine parcels of contiguous freehold land in Tanjung Kupang, Johor, measuring 205.72 acres, for a total cash consideration of RM54.7mn (RM6.10psf), to be satisfied via internally generated funds and borrowings.

The land is strategically located 1km from Port of Tanjung Pelepas and 23km to Jurong Port in Singapore (see Attachment 1), making it feasible for industrial development.
Furthermore, the land is well connected by major infrastructures including ports, airports and Second Link highways, providing easy access to Singaporeans.
Type of development
Subject to the approval of the relevant authorities, the development comprises semi‐detached factories with built up of approximately 5,400sf, priced from RM1.5m and detached factories with built up of approximately 10,000sf, priced from RM2.5mn. It also includes 3‐storey shops with built up of approximately 4,20sf priced from RM650,000. There will also be some factory land of manageable size of 0.5‐1acre per lot for sale for buyers to customize their factories according to their needs.

Land cost at 9.0% of total GDV
We are positive on this timely acquisition to ride on rising demand for industrial properties, especially from Singaporeans amid rising land cost in Singapore. We expect a slew of Singaporean manufacturing companies to relocate its manufacturing facilities here to reduce operating cost. Based on the estimated GDV of RM610mn, the land cost makes up 9% of the total development value, which is below the general rule of thumb of 20%.

Minimal impact on gearing
Based on the group’s net debt of RM195mn or net gearing of 21% as at end‐10, the land purchase would result in net gearing to rise to 26%, assuming the purchase consideration to be financed via 80% borrowings. This is within comfortable levels given our projected breakeven period of 3 years. More importantly, we do not expect the purchase to reduce to group’s ability to frank dividend in the future.
Forecast
No change to our FY11 earnings projections. However, we raise FY12‐13 earnings forecasts by 1.2‐2.8%, assuming additional RM80‐84mn sales from this development.

HAPPY TRADING & GOODLUCK2ALL