Mah Sing rides the slowdown

Mah Sing’s Leong is not worried about completing his 48 property projects in the current subdued market

Having gone through three economic crises, including a stock-market meltdown in 1998, Mah Sing Group Bhd’s group managing director Tan Sri Leong Hoy Kum (pic) is hardly batting an eyelid in the current slow property market.

The only indication that he is doing any fire-fighting – if one can call it that – is that he is maintaining last year’s sales figure of RM3.43bil for 2015.

“Not less than RM3.43bil – (that’s the) minimum for this year,” he says.

This is impressive by any standards because 2014’s sales figure was the highest ever achieved by the company. Leong launched RM3.94bil worth of products and achieved RM3.43bil sales last year. Its unbilled sales total RM5.3bil.

The last few years have been good for the sector and Leong and his team are among the top beneficiaries.

There was a time in the not-too-distant past when there was this unspoken but clearly felt competitive spirit between Mah Sing and S P Setia Bhd. But the various issues which had dogged S P Setia has put paid to all that, and now Mah Sing, which started out as a plastics manufacturer, is holding pole position in the property sector, with 14 analysts tracking the counter.

S P Setia says it has unbilled domestic sales of RM5.4bil. Including the Battersea project in London and its overseas projects, unbilled sales total more than RM11bil. S P Setia’s sales for financial year 2014 was RM4.6bil and the company is maintaining this same target for its current financial year.

Aside from the government-linked property companies, Mah Sing is the largest entrepreneur-run property developer in Malaysia with a 20-year track record.

Although it had debts of about RM1.4bil with a net gearing of 0.37 times as at April 1, according to AmResearch, Leong is unperturbed.

“Our gearing is very healthy. For property companies, the basic rule of thumb is that they should not be geared up to 0.5 or 0.6 times. China developers have a gearing of more than one times and even Singapore developers having gearing of between one and two times. So, we are conservative. Besides, our unbilled sales are (among) the highest in the country,” says Leong.

He contends that the company is in the right direction, with a healthy balance sheet. The company successfully raised about RM630mil via a rights issue recently, of which up to RM530mil will be used for land acquisition and property development activities.

It is a “growing company,” Leong says.

Affordable homes

Keeping a large ship sailing at a steady pace is no mean feat in today’s fluid economic situation. Other developers are consolidating, with quite a number of them embarking on massive and desperate marketing efforts in order to close deals.

Mah Sing is no different. Just this week, the team had descended upon Rawang to sell homes of less than RM200,000.

“We will go for affordability this year and next,” says Leong.

Affordability has continued to be an issue. Transaction volumes have been on a downtrend since last year, while prices continue to increase, albeit at a slower pace, according to the National Property Information Centre.

The anticipated “rush to buy” before the implementation of the goods and services tax on April 1 did not materialise. If anything, the scenario has gone bleaker this year, but Leong is confident that this will pass.

The second half will be better than the first, Leong says. When that happens, he expects “a pent-up demand” to be unleashed, barring other challenges.

“People still have money. They are just exercising caution,” he notes.

But for now, the high-end property market – be it commercial, serviced apartments or bungalows more than RM5mil – has dropped substantially.

In the niche “trophy” asset segment, which attracts mainly foreign buyers, the slow interest has not gone unnoticed by Leong. Those who are buying are mainly upgraders, he says.

He expects this period of adjustment to go on for the next three to six months.

“But as a good businessman, I must deliver (sales). Even during War World II, people still made money – by selling weapons,” he says.

His weapons will be his strategy, his people and his land.

The past year or so has also taught him the importance of people power. Leong, who has about 35% shareholding in the company, says, “No point acquiring a company without the software. So, my assets are my people.”

With the bulk of his land in the Klang Valley, Leong maintains that the demand for urban and city location – where prices are RM1mil and above – will return. But for now, he is concentrating on secondary locations, although he admits that “Bangi is no longer cheap”.

“We will have land which is earmarked for high-end housing when the market turns.”

Leong says what’s important is the value to be extracted from the land. “What’s the point of having thousands of acres when two acres in Kuala Lumpur can give you (a gross development value) of RM2bil?”

“The Klang Valley has seven million people. This is expected to increase to 10 million by the year 2020. There will be demand (after this period of adjustment),” he says.

New milestones

Riding the current slow market, Leong has ambitiously set himself the next milestone – to go global.

“Eventually we would like to be known as a global developer,” he says. He is “exploring opportunities” in Australia and Britain and is keeping an eye on the UK elections as the return of Prime Minister David Cameron is deemed to be positive for the business and property sector.

But he is in “no hurry”, as he has enough on home turf to keep him busy for the next decade.

The other plan that is closer to becoming reality is having recurring income in the form of real estate investment trusts or REITs. As long as he does not, he will have to accumulate land, build and sell. He is currently building malls and hotels and may “eventually keep some of them for recurring income”.

Having moved from manufacturing plastic in the 1970s to property development in the mid-1990s, Leong has learnt quite a few lessons during the last three economic crises.

He recalls the 1997 Asian Financial Crisis: “As a newbie, I was conscious that the first project could not fail as this might affect our confidence level. This was why we launched bread-and-butter products – single-storey link houses. With the strong sales, we were able to have a comfortable cashflow that tided us over,” he says.

In times of crisis, township development will sell. The company plans to launch township development Bandar Meridin East in Kota Masai, near Pasir Gudang, in the third quarter. This will be mainly landed homes. It will focus on this and affordable apartments in Johor.

As for Penang, its products will be priced from RM600,000 to RM1mil. It has a sizeable number of local buyers there, while in the Klang Valley, the strategy would be for prices to be less than RM1mil. This explains its launches in Southville in Bangi last year, where apartment units were priced below RM500,000.

In order to survive an economic crisis, Leong says financial stability, the right products and the right customers are crucial.

“There will be a niche segment in every economic cycle. We really have to understand what customers want and need.” - By The Star