Mah Sing proposed to issue up to RM100m of 7-year Redeemable Convertible Sukuk which will be utilised largely to fund its future investments. To recap, Mah Sing had announced on 7 Aug that its plastics manufacturing division is exploring new expansion opportunities in healthcare related products. Maintain forecasts and BUY rating with an unchanged TP of RM0.85 based on a discount of 60% to RNAV of RM2.14.

NEWSBREAK

Mah Sing proposed to issue up to RM100m of 7-year Redeemable Convertible Sukuk Murabahah (Convertible Sukuk). The proceeds will be utilised largely for future investments (RM95m) and general working capital (RM5m).

HLIB’s VIEW

Neutral on the news. We are neutral on the news as the amount to be raised is rather small relative to Mah Sing’s balance sheet position. Nonetheless, the proceeds are earmarked to finance any potential investments by the Group to expand and contribute positively over the long-term.

Potential venture. To recap, Mah Sing had announced on 7 Aug that its plastics manufacturing division is exploring new expansion opportunities in healthcare related products. We gather that the initial investment sum would be in the range of RM100mRM150m with a targeted payback period of c.1.5 years. Ideally, Mah Sing would be able to tap onto its expertise of its plastics business in order to synergise with this potential venture.

Terms. Mah Sing has fixed the conversion price for the Convertible Sukuk at RM0.755, which represents a premium of c.RM0.0985 (or 15%) over the 5-day VWAMP up to and including 23 Sep (latest trading date prior to announcement) of RM0.6565. The sukuk holders shall have the right to convert the Convertible Sukuk into fully paid-up Conversion Shares at any time from the Issue Date up to the Maturity Date at the aforementioned conversion price. For illustrative purposes, the Convertible Sukuk will be convertible into a maximum of 132.5m shares (assuming full conversion) which represents c.5.5% of the share capital. The sukuk holders may on the 5th anniversary of the Issue date, require Mah Sing to redeem in whole or in part of the Convertible Sukuk in cash. The issue price and profit rate of the Convertible Sukuk have yet to be determined.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM0.85 based on an unchanged discount of 60% to a RNAV of RM2.14. Our buy call is premised upon its commendable take-up of recent launches, cover ratio of 1.1x to provide earnings visibility coupled with the positive sentiment associated with their potential foray into healthcare related products. We see value in the stock as it is priced at a P/B valuation of 0.4x (-2SD of its 5-year mean), and is lower than its GFC trough of 0.68x. The focus on affordable products should garner strong responses (as seen in its recent launches) and dividend with a minimum payout ratio of 40% (FY20 yield: 3.3%, FY21 yield 4.6%) would hopefully serve as a support to share price.

Source: Hong Leong Investment Bank Research - 25 Sept 2020