PETALING JAYA: Analysts think Mah Sing Group Bhd has found itself a bargain buy, worthy of an investment call upgrade.
Mah Sing announced on Wednesday it will pay RM60mil for 3.6 acres in Titiwangsa, Kuala Lumpur. CIMB Research and RHB Research believed it was a reasonable price to pay.
In its report yesterday, CIMB Research said it was positive on the acquisition as the land cost was less than 10% of the estimated gross development value (GDV).
“We also believe there is upside potential to the estimated GDV as the indicative starting price of the project is just RM570 per square foot (psf),” it said.
The firm raised its target price for the stock to RM1.85
“We also upgrade the stock to ‘add’ as we believe a strong sales performance and more land banking are key potential re-rating catalysts for its share price,” it added.
CIMB Research said Mah Sing can comfortably finance the land acquisition and the development of the land parcels with its cash balance and internal cash flows with its latest total cash balance of RM923mil at the end of the financial year 2016 (FY16).
“It plans to launch the development in the second half of 2017, suggesting that the project could start to contribute meaningful profit in late-2018, in our view,” CIMB Research said.
“We also expect strong demand for the units as their starting price is just RM485,000 per unit. This project could also potentially help Mah Sing to beat its 2017 sales target of RM1.8bil,” it added.
CIMB Research said that while the project’s potential GDV of RM650mil was only 2% of Mah Sing’s existing GDV, it believes it could mark the beginning of more land acquisitions for the property company.
“Despite having a solid track record in land banking, Mah Sing did not conclude any land acquisitions in the past two years as it was cautious about the property market conditions. We believe this acquisition is a sign that the company has regained its appetite for land banking,” it said.
Meanwhile, RHB Research increased its target price for the stock to RM1.68.
The firm said in their report that the land acquisition price translated to a land cost of RM387 psf which it believed was reasonable given its close proximity to the KLCC, as well as rail transit stations.
RHB Research further states that the project will be well received eventually, given its location, surrounding amenities and the lake view available.
“We raise our financial year 2018 to 2019 earnings forecasts by 1% to 3%, as we incorporate the earnings contribution from this project into our numbers,” RHB Research said. RHB Research also said that the property market could gradually recover in the second half of the year, thus its rating upgrade on the stock.
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