Mah Sing - Rights price fixed

News   Following their proposed cash call exercise in Dec-12, MAHSING has now fixed the issue price at RM1.42 per Right share on the basis of one-for-three rights issue with free detachable warrants for the rights shares on a three-for-five basis. The exercise price has been fixed at RM2.38 for each 5-year warrant or 16% higher to the theoretical ex-rights price; exbonus, exercise price will be RM1.98. Furthermore, MAHSING is waiting for SC’s approval on allowing Tan Sri Leong (via Mayang Teratai) to undertake up to 50% of the rights if they are undersubscribed. 

  

Comments   The exercise will raise RM397m in cash and majority of the proceeds will be utilised for landbanking activities. Recall MAHSING intends to landbank up to RM5.5b worth of GDV. 

 We gather that management is still negotiating land deals, although there is no clarity on acquisition timeline or size. Nonetheless, it does ready the company for bargain opportunities. Nevertheless, MAHSING has been aggressively replenishing sizable land in the past 5 years and thus we expect the same trend to continue. As mentioned earlier (report dated 11 Dec 2012), the group can bag approximately RM1.1b worth of land, based on a 70:30 debt-equity ratio, which implies potential new GDV of RM7.4b. 

 Post the proposed exercise and major cash commitment of the Bangi’s landbanking, net gearing will improve to 0.38x from 0.52x in FY13, implying higher gearing headroom. 

 Post the rights and bonus issue, our FD SoP RNAV will be adjusted down by 29% to RM2.50 from RM3.50 as we conservatively factor in new GDV assumptions of RM3b plus the entire corporate exercise.

 Our previous FD SoP RNAV did reflect the entire corporate exercise, but we had assumed a different scenario (Scenario 1) earlier while our assumed rights issuance price was RM1.52 Vs. RM1.42 currently. 

 

Outlook  The rights and warrant entitlement date will be announced within one week, subject to SC’s approval as mentioned above.   

 

Forecast  No changes to FY12-13E earnings. Note that our estimates fully reflect the rights and bonus issue. 

 

Rating    Maintain MARKET PERFORM

 We prefer to maintain our current call as we are cognisant of investors shying away from high beta developers in view of nearing GE uncertainties.

Valuation   Maintaining TP of RM2.45 (ex-rights/bonus of RM1.75) based on 30%* discount to FD SoP RNAV of RM3.50 (ex-rights/bonus of RM2.50).

 

Risks  Unable to meet sales targets or replenish landbank.

Sector risks, including negative policies.   

Source: Kenanga