Mah Sing will use new capital to expand landbank

Fresh from a rights issue exercise that will raise RM630mil to finance its landbanking strategies and a whopping unbilled sales register of RM5.1bil, Mah Sing Group Bhd is on a strong financial footing to further bolster its market leadership position and to make foray into new markets.

Its healthy balance sheet will be given a further boost by the fast project turnaround model it adopts where the time frame from the purchase of a land to the launch of the project only takes between six and nine months - a hallmark of this Kuala Lumpur-based property group which also has projects in Iskandar Malaysia, Penang and Kota Kinabalu, Sabah.

Group managing director cum group chief executive Tan Sri Leong Hoy Kum shares that Mah Sing has many plans in store for 2015 to enhance and solidify its market position.

“We look forward to deliver properties sold in the past that will realise the unbilled sales that will translate into cash for the project developments and redemption of our financing. The cash proceeds from the rights issue will be used to finance the group’s property development activities, land acquisitions and general working capital requirement ,” Leong tells StarBizWeek.

Mah Sing has a net gearing ratio of 0.37 times as of end September 2014, and the RM5.1bil in unbilled sales together with the rights issue proceeds of RM630mil give the group a very healthy and strong balance sheet that will allow them to acquire more landbanks for their further expansion.

The group aims to repeat its sales feat of RM3.4bil posted last year, and this will be driven by new launches to the tune of RM3.4bil this year and the sales of the remaining units launched last year.

Sales this year will mainly be derived from Southville City Bangi, M Residence 1 & 2 @ Rawang, Lakeville @ Taman Wahyu, MCity, Icon City, Ferringhi Residence 2, Meridin Bayvue @ Sierra Perdana, Sutera Avenue and Meridin @ Medini.

And in the second half of 2015, Mah Sing will unveil a number of new projects, namely Bandar Meridin East @ Iskandar, M Residence 3 @ Rawang, Star Residence in Subang and Icon Residence in Penang.

Leong says Mah Sing is focusing on four property hot spots of the Greater Kuala Lumpur area, Iskandar Malaysia in Johor, Penang and Sabah. Greater Kuala Lumpur makes up about 67% of its sales and the rest comes from Johor (20%), Penang (11%) and Kota Kinabalu, Sabah (2%).

It is also exploring Malacca and Ipoh for landbanking and development opportunities.

Sales to foreign buyers notably from Singapore, China, Taiwan, Hong Kong and Indonesia presently make up 8% of the total sales. Leong is confident the trending down of the ringgit vis-a-vis the US dollar will raise the foreign buying interest, and Mah Sing can look to raise its foreign sales ratio to 15% of the group’s sales going forward.

Mah Sing’s rights issue of three rights shares for every 10 ordinary shares and 3 free detachable warrants for every 10 rights shares at RM1.42 per rights share will raise RM630mil, of which RM530mil will be allocated for land acquisition and property development activities, and the balance for general working capital and payment for expenses incurred by the rights issue.

Leong says of the proceeds, RM370mil will be for part payment for the acquisition of land in Puchong and Seremban, which will have an estimated gross development value (GDV) of RM9.3bil and RM7.5bil, respectively. It will also be used for development expenditure.

The new rights shares and warrants will be listed on the Main Market of Bursa on Feb 26. Leong has given his undertaking to subscribe for his entitlement of 34.6% under the rights issue in full. The balance will be underwritten by CIMB Investment Bank, Maybank Investment Bank and Affin-Hwang Investment Bank as joint underwriters.

Giving their thumbs up for the rights issue, 12 research houses have made Mah Sing their top sector pick.

CIMB’s Terence Wong says Mah Sing’s rights issue will allow it to pursue a sustainable aggressive landbanking for a robust sales and earnings growth outlook, adding that the dilutive effect from the rights issue should be offset by stronger longer-term growth prospects from its aggressive landbanking efforts.

“With the RM630mil proceeds, Mah Sing has leeway to gear up its balance sheet by another RM1bil while maintaining its net debt to equity ratio of around 0.5 times. The timing of landbanking could also be good as landowners may be more reasonable in their asking price,” he says in a recent note.

TA Securities says the rights issue will help to fund Mah Sing’s landbanking activities and drive future earnings growth.

Post the proposed rights issue exercise and major cash commitment allocated for three parcels of land located at Sultan Salahuddin Abdul Aziz Golf Course, Seremban land and Puchong land, Mah Sing’s net gearing will improve to 0.2 times from 0.5 times in FY2015, indicating higher gearing headroom of up to another RM1bil new borrowings for future land acquisition, TA Securities says.

The affordability factor

The development of the Puchong and Seremban land is expected to be previewed around the end of this year, and Mah Sing expects revenue contribution to commence from 2016.

“We intend to preview the projects this year and the projects’ commencement will further propel our healthy and strong balance sheet to continue with more strategic and timely landbanking opportunities for the expansion of the group,” Leong says.

The 88.7 acres of land in Puchong fronts a lake and the Kelang River.

The project to be developed over 10 years will comprise a proposed integrated mixed development of serviced residences (priced from RM585,000), office towers, shop offices, retail lots, a retail mall and a hotel with an estimated potential GDV of some RM9.3bil. The project plan is subject to approvals from the relevant authorities for the development components.

Leong says the group has also been granted the right for an additional 170.58 acres next to the land, for outright sale or joint venture subject to terms and conditions to be mutually agreed upon with the vendor.

As for the Seremban land, he says the decision to acquire the 960 acres freehold land that straddles the North South Highway follows the overwhelming success of Southville City which has seen a 99% take-up rate of the first five blocks of Savanna Executive Suites, priced from RM338,000, and more than 80% take-up for the 2½-storey Avens Residence Superlink Homes.

“This demonstrates the trend of developments moving south in Greater KL, which is a large catchment area for acquirable homes south of the Klang Valley,” he says.

Leong explains that a key catalyst for the project will be the proposed Kuala Lumpur-Singapore high speed rail project with Seremban as a potential inter-city stop. Mah Sing will propose a direct interchange from the North South Highway to the land.

The development will include terrace houses with indicative price from RM350,000 a unit, superlink houses, semi-detached units, and bungalows, while the commercial component will include serviced apartments, shops, offices and a retail mall.

Given the softer property market outlook, Leong says Mah Sing is targeting the mass and mid-range market in heeding the Government’s call for more affordable housing to be provided to the people.

He says the mass housing market is still attracting good response because demand for residential houses still outstrips supply.

Total transactions for residential properties in the past few years numbered more than 200,000 transactions a year, while the number of newly completed houses was only around 70,000 to 80,000 units a year.

Last year, 87% of Mah Sing’s residential projects were priced below RM1mil, and for 2015, 84% of its launches will be priced below RM1mil, of which 71% will be below RM700,000, and 44% below RM500,000.

“While we have a mixed portfolio of products ranging from residential and commercial to industrial properties, more acquirable housing will be launched to provide opportunities to first-time buyers, upgraders, and also middle-income earners,” he stresses.

Leong says the strategy to serve the mid-range market has reaped good results, as evidenced from the successes of project launches in the mass market and mid-range segment projects that include Savanna Executive Suites in Southville City, Bangi; Lakeville Residence in Taman Wahyu, Kuala Lumpur; D’sara Sentral in Sungai Buloh and Meridin Bayvue@Sierra Perdana.

“We will launch more mid-range products and we strongly welcome landowners with lands in good locations to approach us with their proposals. We have a dedicated business development team which is looking at land everyday,” he says.

Currently the group has 48 projects in its portfolio spread across the Klang Valley, Seremban, Penang, Johor and Sabah. Of these, 10 of the projects are nearing completion.

The new project launches this year will comprise Savanna Executive Suites @ Southville City, M Residence, Icon City, Lakeville Residence, D’Sara Sentral, Ferringhi Residence 2, Meridin Bayvue @ Sierra Perdana and Sutera Avenue. Projects in the pipeline also include Bandar Meridin East in Iskandar Malaysia, Johor; M Residence 3 in Rawang, Selangor; Icon Residence in Georgetown, Penang; and Star Residence in Subang Bestari, Selangor.

Given its savvy landbanking expertise and the wide spectrum of products available, Mah Sing can look forward to another busy year of new launches and strong sales. - By The Star