Mah Sing - Making room for bigger bites

News     Proposed renounceable rights issue with free detachable warrants to raise gross proceeds of up to RM400m. Rights and warrants entitlement and issue price has not been fixed so it provides MAHSING flexibility in terms of rights pricing and number of shares. Issue price is likely to be a 25% discount to the ex-rights price on price fixing date. Post the rights and warrants issuance, a bonus issue (1 for 5 basis) is proposed to reward shareholders.

Tan Sri Leong via Mayang Teratai, the major shareholder at 34.8% stake, intends to undertake up to 50% of the rights with warrants (if undersubscribed); however, if MGO levels are triggered by Tan Sri Leong, the group will seek for SC waiver.

Comments     MAHSING is readying for huge landbanking activities and given the indicative cash call sum, it appears they will be aggressively seeking sizeable ones. They are eyeing Klang Valley (e.g. RRI), Johor and Sabah landbanks and we are bullish on the latter two states.

Out of the potential RM400m cash, RM350m is for landbanking while the remaining is for working cap/expenses. Based on our back-of-the envelope calculation, the group can buy another RM1.1b worth of land, which implies potential new GDV of RM7.4b (refer overleaf). Post the proposed exercise and major cash commitments (e.g. Bangi land), net gearing will improve to 0.16x from current 0.30x, implying significantly higher gearing headroom. If its convertible bonds (currently in-the-money) are converted, the group will enjoy a net cash position. Additionally, the increased share base helps liquidity.

We are glad that MAHSING is making room in its balance sheet for more aggressive landbanking to continue delivering strong double-digit sales and earnings growth given its already ‘high base’ effect.

Outlook      Upon finalizing details of targeted landbank(s), possibly in 1H13, the rights and warrant entitlement/price fixing will follow.

Forecast     No changes to FY12-13E earnings.

Rating     Maintain MARKET PERFORM

We prefer to wait for landbanking details before changing our call/TP as we prefer new growth areas like Johor and Sabah. Additionally, we are cognisant of investors shying away from high beta developers in view of nearing GE uncertainties. We are also in the midst of drafting up our 1Q13 strategy to determine the direction of the sector.

Valuation     Maintaining TP of RM2.45 based on 30%* discount to FD SoP RNAV of RM3.50.

Risks     Unable to meet sales targets. Sector risks, including negative policies.

Source: Kenanga