Mah Sing considers US$310m Vietnam development as Malaysia sales slow
Source: 07-AUG-2008 Intellasia | Bloomberg
Aug 7, 2008 - 7:00:00 AM Mah Sing Group Bhd., a Malaysian developer, is considering a Vietnam venture valued at more than 1 billion ringgit (US$310 million) for its first step overseas, as a faltering home economy slows the company's sales.

"You need to diversify your earnings stream by going overseas,'' Group Managing director Leong Hoy Kum, 50, said in an interview in Kuala Lumpur yesterday. ``We can't depend only on Malaysia for our growth. The foreign market is a must.''

Mah Sing, which cut this year's revenue forecast by half because of rising building costs and Malaysia's slowing economy, is looking to expand across Asia to almost triple sales within five years to as much as 1.5 billion ringgit. Its stock has tumbled 25% this year, faster than the benchmark Kuala Lumpur Composite Index's 22% slide.

"It's very bold and a bit too optimistic,'' said Fatimah Zahra Fadzil, an analyst at Inter-Pacific Capital Sdn. who has a ``neutral'' rating on Mah Sing stock. "These are volatile markets. It'll be very difficult to achieve that target.''

Malaysia's economy is stumbling as higher fuel prices weigh on consumer spending, Second Finance minister Nor Mohamed Yakcop said August 4. A 41% increase in gasoline prices to trim fuel subsidies in June pushed inflation to a 26-year high, leaving Malaysians with less to spend.

Mah Sing is exploring India, China and Indonesia, Leong said. Overseas sales will account for 20 to 30% of the group's total in the next five years, he said. The company is seeking revenue growth of 20% each year, he said.

"If Malaysia is on a weaker growth path, then the other Asian countries could beef up'' its earnings, said Ong Chee Ting, an analyst at Aseambankers Malaysia Bhd. "It's a good diversification strategy, it could possibly bring it close to its 1.5 billion ringgit target.''

Overheating opportunity

Vietnam is Mah Sing's priority as the ``overheating'' in its economy provides chances to buy land more cheaply, Leong said.

"We won't simply venture into a country without a good reason,'' the Mah Sing CEO said.

The company is examining a joint-venture to build homes on 300 to 500 acres of land in HCM City, he said. It may later build offices at a separate location there.

Vietnam's government on July 21 raised the retail price of the most commonly used grade of gasoline in the country by 31% and kerosene by 44%, to reduce the burden of government subsidies paid to fuel retailers. Consumer prices rose 27% in July from the same month a year earlier, the fastest since at least 1992, the General Statistical Office reported on July 24.

Vietnam's ``long-term growth story looks quite decent, looking at the very young population and the housing requirements,'' said Aseambankers' Ong. ``The overheating could slow the pace of development for the next two-years or so.''

Malaysian plan

Ong recommends buying Mah Sing, estimating its shares will rise to 1.74 ringgit from 1.44. The stock has slid 23% since he started coverage with a ``buy'' rating, according to data compiled by Bloomberg. He has a "hold'' recommendation on SP Setia Bhd., Malaysia's largest property group, expecting its shares will decline to 3 ringgit from 3.14 ringgit.

Mah Sing is rated a ``buy'' by nine of thirteen analysts who cover the stock and SP Setia has a similar recommendation from 10 of 24 analysts, according to Bloomberg data.

At home, Mah Sing plans to buy land that will generate gross development value of at least 600 million ringgit each year, Leong said.

He wants to bolster Mah Sing's market value within five years to 5 billion ringgit, which is more than SP Setia's current worth of 3.2 billion ringgit.

"If you don't have a dream or vision, there's no direction for my group to move forward,'' he said. ``It's a management objective.''