• Mahsing announced that the SPA to acqui re 960 acres Seremban land is void or rescinded due to misrepresentation and breach of terms and conditions by the Vendors.

• Mahsing also requested for the refund of 10% deposit which is equivalent to RM36m while approximately RM107.2m raised from the rights issue in Feb15 which be re-allocated for other potential land acquisitions. Financial Impact

• The 960 acres Seremban land cost is circa RM360m with estimated GDV of RM7.5bn and development period of 7-8 years. In our financial assumptions, we only expect it to launch in FY17, hence no financial impact on FY15-FY16 earnings.

• The NPV for the projects is estimated at RM433m. Cancellation of the Seremban land will reduce our RNAV by 5.5% or 14 sen/share.

Pros/Cons

• We believe the cancellation of the Seremban land is justifiable given current headwind in the sector due to weak sentiment post GST and softening marco outlook.

• 2Q sales is likely to remain weak due to cautious sentiment post GST. To recap, 1Q sales is about RM560m or 16.5% of company’s full years company target of RM3.4bn with potential downside risk. However, we have factored in lower sales of RM3bn in our financial forecast.

• The SPA for 89 acres Puchong land acquisition was extended to end of this month. We have factored in RM628m NPV for this project. In the event that the acquisition is cancel, our RNAV will reduced by 20sen/share or 8%.

Risks

• Slowdown in sales;
• Escalation in construction and raw material costs; and
• Delays in launches.

Forecasts

• Unchanged but our RNAV reduced by 5.5% after factored in the cancellation of Seremban Land.

Rating

HOLD

• Given the current headwind in the sector coupled with softening marco outlook, we downgraded the stock from Buy to Hold.

Valuation

• TP adjusted from RM1.94 to RM1.57 after factored in the cancellation of Seremban Land and raising the discount to RNAV from 25% to 35%.

Source: Hong Leong Investment Bank Research - 17 Aug 2015