Mah Sing Group Bhd (Mah Sing) is likely to strike a chord with market demand with high take up rate in its affordable property segment.
In its conviction call note today (Nov 6), Kenanga Research said while it remains cautious on the property sector, the group hits the sweet spot in affordable homes.
“We are cautious due to the persistent oversupply and other elevated interest rates, sustained high inflation and subsidy rationalisation that may erode spending power of certain consumer groups.
“However, see a sweet spot in affordable homes, particularly those priced at RM500k and below in the Klang Valley, Johor and Penang, driven by household formation, urban migration and the trend towards nuclear family versus extended family,” it said.
Reassured with the group prospects post-briefing, Kenanga upgrades its call to OUTPERFORM from MARKET PERFORM and raised its TP by 25% to RM1 from 80 sen, with no adjustment to our TP based on 3-star ESG rating.
“We now apply a 50% discount to its RNAV (vs. 60% previously), which is lower than the average of 60% we accord to its peers with significant exposure to the high-end residential and commercial segments,” it said, adding it now accord a lower discount to RNAV to developers focusing on this segment given the fast turnaround time with a significant pickup in sales after economic reopening.
Kenanga also maintained its earning forecasts, adding Mah Sing can capitalise (the demand in the affordable housing) with its M series products.
“Its presence in the affordable property segment evidenced by the take up rate of at least 90%, showcasing strong interest in its affordable offerings.
“Approximately 65% of buyers are aged 35 or younger. While they may not ready to explore the luxury property market now, its strong position in the affordable housing sector offers a promising outlook for continued growth and success with the current demographic,” it said.
Kenanga highlighted the property developer’s strong sales, with a solid 1HFY23 sales of RM1.2 billion to meet their RM2.2 billion sales target, backed by healthy momentum and competitive pricing.
“The group has seen high demand for recent launches including M Minori, M Meridin East, and M Astra, indicating market confidence in its
product offerings.
“Additionally, interest in upcoming projects signifies potential for consistent growth in the immediate future,” it said.
Kenanga also pointed out the strategic land banking and healthy financials of the group, as 2QFY23 net gearing ratio of 0.12 times underscores their healthy financial health.
“This flexibility is significant considering the industry’s 3% to 5% ROE range which Mah Sing consistently outperforms (5% expected in
FY23). Besides that, the group has a land bank of over 2k acres and GDV of RM24 billion.
The group, the research house added also experiencing robust demand in the industrial property segment, evident in its impressive take-up rate of 90% as well as proactive and innovative in their land search and collaboration with Chinese partner.
“RM2.2 billion sales target does not include their industrial properties, suggesting growth potential beyond its residential portfolio,” it said.
On the other hand, Kenanga said the group’s glove operation in under plan for a scale down to mitigate losses, until average selling prices are more favourable.
Kenanga risks to call include persistent overhang in the high-rise segment, widening losses at its manufacturing division due to low demand and increased operating costs, and sustained elevated inflation and rising interest rates, hurting affordability.
