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PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lt s N o te
27 May 2010

Mah Sing Share Price

Fair Value
1QFY12/10 Net Profit Grows 23% YoY Recom : Outperform

Table 1 : Investment Statistics (MAHSING; Code: 8583) Bloomberg: MSGB MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 701.6 94.3 11.3 (8.5) 13.8 - 7.4 1.5 11.1 Net cash 4.2
2010F 817.6 109.2 13.1 15.8 11.9 14 8.5 1.4 12.0 Net cash 4.5
2011F 981.8 152.0 18.3 39.3 8.5 17 2.8 1.3 15.2 Net cash 6.3
2012F 1,335.3 204.0 24.5 34.2 6.4 22 1.5 1.2 18.1 Net cash 8.4
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus Based On IBES Estimates

♦ In line. 1QFY12/10 net profit came in within expectations at 25-26% of RHBRI Vs. Consensus
our full-year forecast and the full-year market consensus. 1QFY12/10 net
In Line
profit grew +23.2% yoy driven by progress billings from Southgate
(commercial project with GDV of RM458m) as well as landed property
projects such as Hijauan Residence (GDV of RM315m), Kemuning Issued Capital (m shares) 831.6
Residence (RM136m) and Aman Perdana (RM858m) in Klang Valley, Market Cap(RMm) 1,297.2
Residence @ Southbay (RM234m) in Penang island as well as Sierra Daily Trading Vol (m shs) 0.6
52wk Price Range (RM) 1.40-1.83
Perdana (RM526m) and Sri Pulai Perdana 2 (RM225m) in Johor Bahru. For
Major Shareholders: (%)
1QFY12/10, the company chalked up impressive sales of RM600.9m (vs.
Tan Sri Leong Hoy Kum 34.2
RM170.2m in 1Q09 and RM727m in FY09), already accounting for 59.6% of PNB 25.0
its FY10 sales target of RM1bn. Meanwhile, the company’s unbilled sales Koperasi Permodalan Felda 7.7
stood at RM1.1bn as at end-1QFY12/10, or 1.6x of our FY12/10 property
revenue forecast. FYE Dec FY09 FY10 FY11
EPS chg (%) - - -
♦ To secure more tenants for The Icon @ Tun Razak. We understand
Var to Cons (%) (6.2) 7.5 11.5
that Mah Sing is in the final stages of negotiation with several potential
tenants from the financial services, telco and oil & gas sectors for office PE Band Chart
space in The Icon @ Tun Razak. These potential tenants that could come in
by 2H10, could substantially raise the occupancy rate from less than 5%
PER = 14x
currently, easing Mah Sing’s burden in honouring the 7% annual PER = 12x
PER = 10x
guaranteed rental yield under sale-and-lease-back agreements signed with
certain investors of The Icon @ Tun Razak in 2009 (see Table 3). Note that
honouring the guaranteed rental yield as well as maintenance & service
charges contributed to a 3.6%-point decline in EBIT margin from 21.3% in
1QFY12/09 to 17.7% in 1QFY12/10. Nevertheless, we are not overly
concerned over the negative impact from the guaranteed rental yield Relative Performance To FBMKLCI
scheme as it will slowly go away as and when the occupany rate raises, and
Mah Sing, to a certain extent, already priced this in via a premium to the
selling prices previously.
♦ Forecasts. Maintained. Mah Sing

♦ Risks and concerns. The risks include: 1) potential cancellation of

purchase agreements by buyers; 2) competition from peers; 3) delays in
launches and approvals; and 4) country risk.
♦ Maintain Outperform. We continue to like Mah Sing given: a) The
generally short turnaround time for its property projects that means lower
holding costs and strong cash flow; b) Its strong net profit CAGR of 29%
between FY12/09-12; and c) It being a proxy to the upturn in the local Joshua CY Ng
property market. Indicative fair value is RM2.09 based on RNAV (see Table (603) 92802237
Please read important disclosures at the end of this report.

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Table 2. Mah Sing Quarterly Results
FYE Dec (RMm) 1Q09 4Q09 1Q10 3M09 3M10 YoY (%) Comments
(%) (%)
Turnover 150.3 248.9 238.3 (4.2) 58.5 150.3 238.3 58.5 Yoy increase due to new launches
and improved property demand as
well as construction works that
were on track. Main revenue
contributors included Southgate,
Hijauan Residence and Aman
Perdana in Klang Valley, Residence
@ Southbay in Penang island as
well as Sierra Perdana and Sri
Pulai Perdana 2 in Johor Bahru. In
1QFY12/10, the company
registered RM601m sales or 59.6%
of its FY10 internal sales target of
EBIT 31.9 48.7 42.1 (13.5) 31.8 31.9 42.1 31.8 Decline in EBIT margin due to full-
year impact of RM8.6m additional
costs arising from guaranteed
rental as well as maintenance and
service fees for Icon Tun Razak.
Net interest (0.8) (0.2) (0.4) 72.9 (52.7) (0.8) (0.4) (52.7) The company had a net gearing of
0.05x as at end-1QFY12/10, from
net cash of RM176.5m as at
Pretax profit 31.1 48.5 41.7 (13.9) 34.0 31.1 41.7 34.0
Taxation (8.9) (22.1) (10.1) (54.3) 12.7 (8.9) (10.1) 12.7
Minority interest 0.5 (1.3) (3.7) >+100 >-100 0.5 (3.7) >-100
Net profit 22.6 25.1 27.9 11.1 23.2 22.6 27.9 23.2 Within our and consensus
EPS (sen) 3.6 3.9 4.0 3.6 11.7 3.6 4.0 11.7
Gross DPS (sen) 0.0 6.5 0.0 Na Na 0.0 0.0 Na
NTA/share (RM) 1.1 1.2 1.3 1.1 1.3
EBIT margin (%) 21.3 19.6 17.7 21.3 17.7 Declined yoy, having to honour
guaranteed rental yield of The Icon
@ Tun Razak to certain investors.
Pretax margin (%) 20.7 19.5 17.5 20.7 17.5
Tax rate (%) 28.7 45.6 24.2 28.7 24.2

Table 3: Sale and lease back office transactions

Selling price Rental guarantee yield
Office/location Buyer (RMm) (%) NLA (sq.ft.) Tenure (years)
1. 8-storey retail and office block - Koperasi 185.8 8% 232,351 2
Southgate Commercial Centre Permodalan Felda
2. 20-storey Grade A commercial T.S. Law Realty 226.5 7% 278,182 3
building - The Icon @ Tun Razak - S/B
East Wing
3. 20-storey Grade A commercial Koperasi 174.4 7% 243,830 3
building - The Icon @ Tun Razak - Permodalan Felda
West Wing Bhd
4. Additional floor area - The Icon @ Koperasi 8.6 7% 12,846 3
Tun Razak -West Wing Permodalan Felda
Source: Mah Sing

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Table 4. Earnings Forecasts
Table 5: WACC assumption
FYE Dec (RMm) FY09a FY10F FY11F FY12F
Revenue 701.6 817.6 981.8 1,335.3
Risk free rate 4.2
Operating profit 146.4 169.2 217.5 300.3
Equity risk 6.5
Interest expenses (2.2) (8.7) (7.9) (5.2)
Beta 0.625
PBT 144.2 160.5 209.6 295.1
WACC 6.2
Tax 95.8 120.4 157.2 221.3
Minority interest (1.6) (11.2) (5.2) (17.4)
Net profit 94.3 109.2 152.0 204.0
EPS (sen) 11.3 13.1 18.3 24.5
GDPS (sen) 6.5 7.0 9.8 13.1

Source: Company data, RHBRI estimates

Table 6: RNAV
Project DCF (RMm) *
On going projects
1. Aman Perdana, Meru-Shah Alam 23.2
2. Sri Pulai Perdana, Skudai 9.1
3. Sri Pulai Perdana 2, Skudai 26.2
4. Austin Perdana, Tebrau 8.5
5. Sierra Perdana, Tebrau 48.9
6. Southgate Commercial Centre, KL 67.1
7. StarParc Point, Setapak 24.9
8. Hijauan Residence, cheras 36.0
9. Kemuning Residence, Shah Alam 3.4
10. Residence @ Southbay, Penang 22.1

Future projects
11. Legenda @ Southbay, Penang 36.4
12. Southbay City, Penang 106.3
13. Icon Residence, Mont Kiara 50.6
14. One Legenda, Cheras 16.1
15. Bayu Sekamat, Hulu Langat (2.0)
16. Garden Residence, Cyberjaya 94.6
17. iParc, Bukit Jelutong 19.6
18. Perdana Residence 2, Selayang 32.6
19. Petaling Jaya Commercial Hub 133.5
20. Icon Residence, Georgetown 28.3
21. iParc 2 @ Shah Alam 22.4
22. Commercial project in Cyberjaya 43.0
23. M Suites @ Jalan Ampang 38.9
Total 889.6
Shareholders fund as at Dec 09 845.7
Total RNAV 1,735.2
Number of shares 831.6
RNAV per share (RM) 2.09
* WACC of 6.2%

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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