Mah Sing takes property market condition in stride

PERCEPTION may be that the property market is in a slump but Mah Sing Group Bhd’s head honcho not only remains bullish but is poised to take advantage of new opportunities.

Tan Sri Leong Hoy Kum (pic), founder and group managing director of Mah Sing says that the company has been successful in capturing the growing interest in the affordable segment and doing so by remaining cost-efficient while not compromising on quality.

This year, Mah Sing has a total of 10 planned residential projects with an estimated gross development value of Rm2.2bil. It also continued with advanced phases of its earlier projects.

The property group is launching four residential projects in Klang Valley and Johor namely M Oscar, M Arisa, fourth tower of M Vertica and Acacia in Meridin East next month.

“Despite the present challenging market conditions, properties in the affordable range and at strategic locations with good accessibility remain in high demand,” says Leong.

“The growing interest seen in the market, especially in the affordable segment has returned buyers’ purchasing confidence.”

This in turn, has made Mah Sing to be on the lookout for new land. Mah Sing has acquired three parcels of prime land in the Klang Valley, forking out a total of Rm247.07mil.

Some of the research houses are maintaining a “buy” call on Mah Sing on the back of its strong balance sheet and acquiring landbank in strategic locations which target the affordable housing segment.

According to Bloomberg data, six houses have a “buy” call while eight are “hold” with no sell calls. The consensus target price for Mah Sing is at 99 sen per share, indicating a 32% upside.

However, detractors point to the massive unsold properties that remain in the country. Hence, is Mah Sing taking too much risks by continuously launching new projects and buying land to build more properties?

According to Leong, the group’s prudent cash flow management has allowed it to be in a good position to focus on replenishing its prime land in the Klang Valley, especially in the affordable property range.

Mah Sing’s remaining landbank stands at RM2,086 acres, which would yield a remaining gross development value (GDV) and unbilled sales of Rm25.8bil as of June 30, 2019. The group is on track to achieve its target of Rm1.5bil from sales this year on the back of Rm761.4mil sales recorded for the first half ended June 30.

“Now that we are moving into the fourth quarter of 2019, we see that we can inject more excitement into the market with the launch of several new projects and the opening of registration of interest for our on-going projects”.

He also points out that innovation has also been a key to overcome the current market conditions.

“We are adapting advancement of various digital platforms and leveraging our strength of digital marketing and innovative marketing initiatives to reach out to wider market segment,” he says.

Mah Sing has implemented several digital initiatives from sales and marketing, construction management and quality assurance, customer experience via the group’s My Mah Sing app as well as engagement to property management.

One strategy that Mah Sing has taken is to opt for the issuance of perpetual bonds – it has so far raised more than Rm1bil from the issuance of these papers.

On the rationale of the strategy for the group to opt for this method of fund raising, he said: “Perpetual funds provide the flexibility for us to lock in good land whenever the opportunity arises. The utilisation of the proceeds is mainly used for accelerating projects with a good take-up rate and working capital,” he says.

Subscribers of the perpetual bonds are targeted at high net worth individual investors, fixed income asset managers and insurance companies.

Notably, Rm540mil of those bonds will come due March 31, 2020 as it issued its first tranche in March 2015. There were two more tranches that raised a total of Rm795bil.

Not redeeming those bonds will result in Mah Sing having to pay a much higher interest to the bondholders.

However, Leong says Mah Sing is confident of redeeming the first tranche of papers next year as it continues to build its sinking funds given that it has a healthy balance sheet with cash of around Rm1.29bil as at June 30, 2019.

“We are very confident and Mah Sing is in a good position to redeem the perpetual bonds in March next year,” he notes.

On property sales, Mah Sing will focus on selling its existing unsold units, which has been successful in reducing the completed unsold units through its marketing initiatives.

He adds that Mah Sing’s unsold units are at a “healthy” level, explaining that its unsold stock has not impacted the group’s revenue.

Mah Sing recorded a net profit of Rm50.3mil and revenue of Rm481.24mil in the second quarter ended June 30, 2019.

Undoubtedly, there is a glut of Rm100bil worth of high-end units that prompted the Housing and Local Government Minister Zuraida Kamaruddin to propose for the House Ownership Campaign to venture into China or Hong Kong.

Although she came under criticism from the public for her proposal, Leong described the ministers move as “practical”, as it would help mitigate the cash flow problems for developers.

“Lets be practical here. Selling units of above Rm1mil to foreigners will not affect the locals. This move will help developers that are currently facing cash flow problems and retrenching its workers,” he points out.

Recently, Hong Kong’s superstar Eric Tsang visited Mah Sing’s sales gallery in Kuala Lumpur, showing interest in buying property units in the country.

Although Mah Sing appears to be taking the right strategies in the perceived tough market conditions, Leongs expects challenges of finding suitable land amid the scarcity of prime land in the Klang Valley.

Leong is also looking out for industrial land to build an industrial park in Selangor by 2020.

In view of opportunities arising from the Us-china trade spat, he believes that it is the “right” time to build an industrial park due to the rising number of inquiries from China about warehouse facilities.”

That strategy may very well be the next growth area for Mah Sing.