Mah Sing may gain up to 25% margins from Southville

KUALA LUMPUR: Property developer Mah Sing Group Bhd is expected to benefit from its latest land purchase in Bangi, Selangor, due to the large pre-tax profit margins the company can gain from the development.

Analysts said the development of Southville City on the Bangi land could achieve pre-tax profit margins of up to 25%.

The project would be developed on a 408-acre freehold land and four-acre leasehold land.

Maybank Investment Bank Bhd analyst Wong Wei Sum said in a report that the development, slated for a launch in the first-half of 2013, could translate into a net profit of RM50mil per annum or six sen per share. This is on the assumption of a 25% pre-tax profit margin and an eight-year development period.

She has retained a “hold” rating on the stock on the premise that higher interest costs had lowered the company's 2012-2013 net profit forecasts by 0.2% to 1.2% and had also raised net profit forecast for 2014 by 4.7%.

“Post-acquisition, Mah Sing's net gearing would jump to 0.6 times from 0.3 times as at end-Dec 2011. There's no change to our RM2.95 revised net asset value estimate,” Wong added.

Hong Leong IB said it was “positive” on the land acquisition.

“We are positive on this acquisition as land cost makes up 16% of overall gross development value, meaning margins should be healthy.

“This is a very quick turnaround project, with Phase 1 to be launched in the second half of this year. We expect earnings contribution to commence in the first half of 2013. Phase 1 will comprise double-storey link homes indicatively priced from RM530,000.”

Hong Leong IB has retained its “buy” call on Mah Sing with a target price of RM2.44, which is a 30% discount to revised net asset value.

Meanwhile, analysts at Kenanga Research have maintained their “market perform” rating on the stock and lowered their target price to RM2 from RM2.18 previously.

They said that it was a sector-driven call due to the unexciting sector dynamics, coupled with Mah Sing's higher-than-average net gearing level among developers under their coverage.

By The Star