Mah Sing Group - Surprise rights issue BUY

- We reaffirm our BUY recommendation on Mah Sing Group (Mah Sing), with our fair value kept 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’s earnings.

- It was announced to Bursa yesterday that Mah Sing has proposed to raise RM400mil cash via a rights issue together with free detachable warrants. On top of that, Mah Sing will issue 1 bonus share for every 5 Mah Sing shares held.

- The bulk of the funds would be utilised for land acquisitions with Mah Sing eyeing several parcels of land within the Klang Valley and Johor mainly. 

- However, details of the rights structure have not been fixed yet at this juncture. We understand that Mah Sing is looking at finalising the details by 1HFY13 where this will coincide with one of several land acquisitions to be made.

- Except for the concerns about the potential dilution – this rights issue comes with a sweetener, in the form of the warrants and bonus issue. The bigger share base would improve its liquidity in the market which should attract more funds. 

- Thirdly, net gearing would at least be kept at its target level of 50% (current net gearing is 30%); assuming Mah Sing secured RM350mil worth of landbank, its net gearing may stretch up to 60%.

- Minority shareholders should also be pleased with the fact that the Managing Director Tan Sri Leong Hoy Kum, via Mayang Teratai, has made a commitment to underwrite 50% of the proposed rights issue and warrants amounting up to RM200mil. 

- More importantly shareholders would be able to ride on Mah Sing’s strong ascendancy as a proxy to the Malaysia’s property sector. We are quite bullish – based on Mah Sing’s strong track record – that it would be able to at least match its achievement this year of RM5.88bil in GDV replenishment on the back of four land acquisitions. 

- From a valuation standpoint, Mah Sing is currently trading at a steep discount of 50% to our estimated NAV of RM4.60/share and an attractive FY13F PE of 7x. We feel the share price would continue to trade within range given the weak sentiment for property counters. 

Source: AmeSecurities