MIDF neutral on Mah Sing’s Seremban land refund

By Xavier Kong

Following Mah Sing Group Bhd’s announcement that the group will be receiving a full refund on the aborted Seremban land deal, MIDF Research has maintained their “neutral” rating on Mah Sing, as well as their target price of RM1.40, stating that the news was not a surprise.

“This is not a surprise as Mah Sing had announced on Aug 17, 2015 that it has rescinded its proposed acquisition of land in Rantau, Seremban,” said MIDF, noting that the reason for the cancellation was a breach of terms in the sale and purchase agreement by the vendors.

“We gather that the vendors have offered to settle the land dispute out of court by refunding the deposit of RM35.96 million to Mah Sing, and both parties withdrawing all claims against each other in this suit. However, the vendors will keep the RM1.56 million interest accrued from the deposit,” added MIDF.

MIDF also noted that Mah Sing is sitting on a very strong balance sheet and nett gearing of 0.05 times, and the research house expects the group’s nett gearing to stay below 0.15 times up to the end of the 2016 financial year (FY16).

“This should allow Mah Sing to balance its short-term stability while prudently approaching future land acquisition to sustain long-term growth,” noted MIDF, who is of the opinion that the strong balance sheet will help Mah Sing weather the challenges in the property sector.

The research house also quoted statistics from Bank Negara Malaysia, which show that loan applications for purchase of property have declined 7% year-on-year in the first 10 months of the 2015 calendar year to RM253.88 billion.

“We view this as an indication that lower property sales trend is likely to continue into the first half of the 2016 calendar year,” noted MIDF, adding that the upside on Mah Sing’s share price is expected to be limited as FY15 sales are estimated to have declined by 34% year-on-year from RM3.43 billion to RM2.28 billion. However, MIDF also noted that the downside will be supported by the group’s “decent dividend yield” of 4.1%.

Towards the end of the morning’s trading session, Mah Sing’s shares were last traded at RM1.39, up 1 sen on razor-thin volume.