- We maintain our BUY call on Mah Sing Group with our fair value lowered slightly to RM3.80/share (by ~3%) on an unchanged 10% discount to its NAV, as we update its shareholding base. Mah Sing announced a fund raising proposal that includes a rights issue with free detachable warrants (five-year tenure) along with a bonus issue (1-for-4). The rights issue with warrants are set to be completed by 1Q15 (bonus issue: 3Q15).

- While the salient terms of this corporate exercise has yet to been determined, Mah Sing plans to raise close to RM630mil. Out of this, some RM370mil would be utilised to fund its recently acquired land in Seremban and Puchong, RM160mil for future property development activities, and RM92mil for general working capital purposes.

- Based on a 3-for-10 rights issue scenario and an indicative issue price of RM1.42/share, our initial calculations point to an ex-rights fair value of RM3.06/share.

- This latest move allows Mah Sing to recapitalise its balance sheet to partly fund its recent landbanking activities (YTD: three land deals with GDV of RM19bil), while freeing up cash flow for other fresh value-accretive deals.

- Based on pro-forma estimates, net gearing will still be capped at ~35% – below its internal ceiling of 0.5x – even after fulfilling all outstanding obligations for the Puchong, Seremban and KGSAAS lands.

- Notably, proceeds from the rights issue would be quickly put to use where the Seremban and Puchong projects are set to commence by 1H15 and 2H15 respectively, with earnings to kick-in from FY16F.

- Not unlike last year’s fund raising exercise, Mayang Teratai (the vehicle of Mah Sing Group MD Tan Sri Leong Hoy Kum) has given an undertaking to subscribe to its rights entitlement in full.

- Furthermore, participating shareholders of Mah Sing will get to ride the group’s robust future prospects at a deep discount (minimum: 20% off its theoretical ex-rights price) plus free warrants as additional sweeteners.

- Mah Sing’s 9M14 property revenue surged 50% YoY at RM1.8bil. Group net profit, up by 21% YoY at RM255mil, was within expectations. New property sales stood at ~RM2.4bil or c.68% of its full-year target of RM3.6bil.

- Earnings visibility remains strong (unbilled sales at RM5.1bil: ~3x FY13 property revenue). Apart from Seremban and Puchong, new launches include Bandar Meridin East in Pasir Gudang, Johor (1Q15) offer landed homes that are attractively priced at below RM400k.

Source: AmeSecurities