- We reaffirm our BUY call on Mah Sing and raise our fair value to RM3.80/share – at parity to our FD NAV. We have removed the discount (previously 25%) to our NAV to reflect Mah Sing’s rapid ascendancy as an entrepreneurdriven proxy to the property sector under the stewardship of its energetic major shareholder Tan Sri Leong Hoy Kum.

- Our conviction stays: Mah Sing’s share price re-rating cycle is still at the early stages. Its market capitalisation has surpassed US$1bil, now triggering a broadening of institutional interest to the larger funds. Upcoming property IPOs at seemingly high valuations would also underpin its share price. Armed with some RM400mil cash from the rights issue, we expect significant NAV growth to be driven by several catalytic land deals that should also underpin a stronger earnings growth trajectory.

- In this report, we confront in greater details the market’s misplaced concerns over Mah Sing’s operating cash flows and balance sheet arising from the funding needs of its 41 development projects and unsold work-in-progress (WIP).

- Looking at the project life cycle of the 41 projects, eight have been completed and five are already at the tail-end. Six more are at the various stages of planning. The remaining 22 (including pockets of high value sites) are either at the infancy or early cycle growth phases.

- In most instances, funding for ongoing projects is not an issue as pre-sales have consistently surpassed the cash flow breakeven take-up rate of 60%. The ongoing projects are largely self-funded from drawdown of locked-in sales. Unbilled locked-in sales have reached RM3.2bil, with a record RM3.0bil in new sales targeted for FY13F, anchored by Meridin@Medini and Southville.

- The more important issue is the status of the unsold WIP from previous years’ launches; primarily for its five projects – Icon Residence, M City, Icon City, Kinrara Residence and Garden Residence – that are worth ~RM1.2bil as at end-2012.

- But we are not too concerned. Inventory liquidation of WIP is well underway in earnest. Management has put in place a sound strategy to liquidate the unsold WIP. This includes rebranding, resizing as well as concerted marketing efforts with attractive buying incentives. In the last four months, it has sold an impressive RM430mil of unsold WIP for the five projects mentioned above, bringing the tally down to RM738mil as of 6 May 2013.

- Another RM230mil of the balance unsold WIP comprising landed homes at Garden Residence and Kinrara Residence should be taken up as they approach physical completion in the coming months, leaving a balance of just RM500mil.

Source: AmeSecurities