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Saturday, August 15, 2009

Mah Sing’s missing link

Today’s topic is “managing the news” and here’s a question for discussion: What does a listed company do when it has two unrelated major deals to disclose in one day? That doesn’t happen often, of course. Fortunately, we have a fresh case study.

On Wednesday, Mah Sing Group Bhd had a couple of stories – actually three, but we’ll get to that later – to tell and each involved a hefty sum of money.

It’s apparent that the property developer knew in advance that it would be making the news that day. On Aug 7, it sent out an invitation to a press conference on Wednesday morning. The purpose? To announce a “material corporate development”.

Then on Tuesday, the property developer requested for a one-day suspension of trading in its shares “pending announcements relating to material transactions”. Note the company’s use of plural nouns.

However, at the press conference, the Mah Sing management talked about only one deal – its proposed acquisition of almost 47 ha of freehold land in Cyberjaya.

Wholly-owned subsidiary Myvilla Development Sdn Bhd is buying the property from Cyberview Sdn Bhd and Setia Haruman Sdn Bhd for RM130.5mil cash.

Myvilla also has an option to buy an adjacent plot of commercial land (2.6ha) within 12 months from the date of the sale and purchase agreement.

Mah Sing’s plan is to develop medium to high-end homes on the land. The project will be called Garden Residence and its estimated gross development value is RM690mil.


The press release handed out at the function dwelled primarily on the proposed acquisition. It quotes group managing director and chief executive Tan Sri Leong Hoy Kum as saying: “As major infrastructure is readily available and the vendor shall provide other infrastructure, we are confident that the project shall fit our business model of having a quick turnaround which is highly cash generative.

“Developing land in Cyberjaya has an added economic advantage as there are no low-cost components requirements since the master developer is relocating them to another location.”

Nevertheless, Mah Sing accords higher priority to a different bit of news. The press release kicks off by stating that the company’s sales for the first 7½ months of financial year 2009 has surpassed expectations.

Says the developer: “Mah Sing Group Bhd has achieved RM543mil sales in just 7½ months, exceeding its full-year target of RM453mil by 1.2 times. The group’s unbilled sales in 7½ months now stand at RM800mil, approximately 1.6 times the revenue recognised from the property division last year.”

Leong attributes this to “pre-emptive measures” over the last few years in project planning, pre-construction, cost management and cash management. He also credits the company’s marketing strategy, which includes coming up with the 5/95 home loan package.

Here’s when things got a little curious. After the press conference, Mah Sing issued not one, but two announcements through the Bursa Malaysia website.

Artist's impression of Southgate Commercial Centre

One was regarding the Cyberjaya land acquisition. The other was about a proposed en bloc sale and leaseback of an eight-storey office building by another wholly-owned subsidiary, Jastamax Sdn Bhd. The building is part of the ongoing Southgate development fronting Jalan Sungai Besi, Kuala Lumpur. Koperasi Permodalan Felda Bhd (KPFB) is buying the property for RM226mil cash and Jastamax will subsequently lease it back for two years.

It’s pretty much a standard announcement of a deal until you get to the six-paragraph rationale. Mah Sing is eager to explain the transaction, pointing out that the proposed en bloc sale has been structured to ensure a win-win for both the vendor and purchaser.

“Following the overwhelming success of the 5/95 programme, the group is extending this programme to KPFB,” says the company.

“As per the normal terms of this programme, 5% of the sale consideration will be paid upon the execution of the sale and purchase agreement and the purchaser’s financiers shall release the balance 95% of the sale consideration to the vendor based upon the architect’s certification of each stage of completion.”

But the most intriguing part is the third paragraph: “With the proposed en bloc sale, the group has achieved sales of RM543mil in just over 7½ months of financial year 2009, exceeding the group’s full-year sales target of RM453mil by 1.2 times. It also allowed the group to reach an unbilled sales level of approximately RM800mil which is 1.6 times of our property revenue last year.”

By omitting the proposed en bloc sale from its press release and yet highlighting the sales that had benefited from the transaction, Mah Sing has presented a distorted picture. And why did it choose to be silent about the en bloc sale at the press conference?

The developer had three developments to publicise – the proposed Cyberjaya land purchase, the proposed en bloc sale and its claim that it has exceeded its sales target with more than four months to spare. The third is a consequence of the second.

Yet, when the management issued a press release and briefed the media, it did not offer all the facts. In its Aug 7 invitation to the press conference, Mah Sing says: “We understand the importance of keeping both retail and institutional investors informed on our plans and business strategies.” Sometimes, things are easier said than done.

Deputy business editor Errol Oh wonders if it’s hard to get things right when there are too many stories to tell. He doesn’t know the answer because he hardly has any developments worth talking about in a year, let alone two announcements to make in a single day.

By The Star (by Errol Oh)

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