Results

• Within  Expectations:  MSGB’s  9MFY14  PATAMI  of RM254.7m  came  in  within  expectations,  accounted  for 76.4%  and  74.8%  of  ours  and  consensus’  full  year forecasts, respectively.

Dividends

• None  in 3Q (typically declared  in 4Q).

Highlights &nbs

Y14  revenue  of  RM2.1bn  showed  an  impressive  43.3% growth  yoy  thanks  to  higher  work  progress  from the group’s ongoing  development  projects.  Operating  profit  grew  to RM323.5m  largely  due  to  higher  profit  recognition  from  Icon City and M Residence.

MSGB  achieved  property  sales of circa RM2.45bn YTD as it remained  focus  on  mass  market  properties.  It  has  also grown its landbank by 1,134 acres from its recent acquisition in  Shah  Alam,  Seremban  and Puchong, bringing the group’s undeveloped  land  bank  to  3,658  acres  with  GDV  of RM44.8bn.  Unbilled  sales  stood at an outstanding RM5.1bn, representing  2.94x  of  FY13 property revenue.

Separately,  MSGB  also  proposed  (1)  renounceable  rights issue  with  free  detachable  warrants  to  raise up to RM630m; and (2) a 1 for 4 bonus issue following  the rights issue.

The entitlement bases and issue price are yet to be fixed but based  on  the  indicative  scenario  of  3  rights  for  every  10 MSGB  shares,  there  will  be  a  total of 442.7m rights issued. The  proposed  rights  issue  is  intended  to  be  undertaken  by Mayang  Teratai  (investment  vehicle  of  Tan  Sri  Leong)  on  a full subscription basis.

This  would  result  in  dilution  of  FY14-15  EPS  by  16.6%  and 22.2%  while  RNAV  will  be  diluted  by  13.8%.   However,  we expect  the  quantum  of  the  dilution  would  not  be  as significant  as  it  would  be mitigated by the potential earnings from  the  launch  of  the  development  in  Puchong  (1HFY15) and Seremban  (2HFY15).

The  utilization  of  proceeds  of  RM630m  will  be  largely  used for  its  land  purchases  in  Puchong  and  Seremban (RM370m),  while  another  RM160m   will  be  for  property development  activities.  The  balance  of  100m will be used for working  capital  (RM92m)  and  expenses  in  relation  to  the proposal  (RM8m).

This  will  significantly  lower the group’s gearing  to 0.13x from 0.37x  and  allow  MSGB  to  have more room to gear up (circa RM800m)  for  more land acquisitions going forward.

As  for  the  timeline  of  the  corporate  exercise,  the  expected completion  for  the  proposed  rights  issue  with  free  warrants and bonus issue are by 1QFY15 and 3QFY15,  respectively .

Risks

• Slower  than  expected  sales;  execution  risks  for  projects; inability to replenish  landbank.

Forecasts

• Maintained.   

Rating

BUY

• MSGB  currently   trades  at  8.5x  FY15E  P/E  vs.   its historical 5-year  P/E average  of 11.1x   

Valuation

• TP  maintained  at  RM2.90  (maintain  20%  discount  to RNAV),  which  values  MSGB at 10.6x  FY15E  P/E  still below its historic al 5-year P/E average  of 11.1x. Maintain  BUY.

Source: Hong Leong Investment Bank Research - 21 Nov 2014