Mah Sing Group - No go for tie-up Buy

- We reaffirm our BUY recommendation on Mah Sing Group (Mah Sing), with our fair value unchanged at RM3.60/share, pegging a 25% discount to our FD NAV estimate of RM4.80/share. Our fair value implies a PE of 12x on FY13F earnings. 

- It was reported in the media over the weekend that Dijaya Corporation (NR – Market cap: RM985.5mil) is eyeing a possible merger with Mah Sing and that both companies have begun talks to explore the possibility. 

- However, our discussion with management indicates this would not materialise although the two entities would possibly collaborate on a project level in the near to medium term.

- While Dijaya offers some attractive landbank and this merger would lead to stronger following from the market, given that these two companies are entrepreneur-driven, the market would be concerned about possible personality clashes.   

- Secondly, we do not believe that Tan Sri Leong would be keen to impart his stake in Mah Sing when the company is undervalued – a 54% discount to its FD NAV of RM4.80/share.

- Also, the capital structure for the new entity would be rather unbalanced as shares are tightly held – circa 71% – by Tan Sri Danny Tan at Dijaya Corporation vis-a-vis Tan Sri Leong’s 35%.  

- From a valuation standpoint, Mah Sing is currently trading at a massive discount of 54% to its FD NAV estimate, supported by an attractive FY13F PE of 8x.  

Source: AmeSecurities