- Changing the face of Maica. Of late, MAICA has attracted a lot of attention due to the potential injection of SunSuria’s assets as Datuk Ter Leong Yap (who is also the founder and major shareholder of SunSuria) will soon own >51% of the company post the General Offer. Datuk Ter has expressed intentions of nurturing MAICA to become a property company from its current wood manufacturing business, which will be maintained.

- Maiden venture into property development. To recap, MAICA has acquired 2 pieces of Bukit Jelutong landbank for RM56m. Both parcels of lands are estimated to have a total GDV of RM296.6m. To finance the land acquisitions and working capital requirements, a placement of 28m new shares at 50 sen (proceeds: RM79.2m) was issued on 28-Jan-14. Post placement, the company has a healthy balance sheet with a net gearing of 0.15x and total shareholders’ funds of RM85.3m. Assuming the property project starts selling by end-FY14 to early-FY15, we believe property contributions will start flowing in from FY15 and we estimate FY14-15E net profit of RM1.3m (+37.7% YoY) - RM2.5m (+83.2% YoY).

- More SunSuria assets to be injected into MAICA? Sunsuria has 3 major landbanks; (i) 28 acres in Setia Alam, (ii) 82 acres in Medini, Johor, and (iii) 300 acres in Salak Tinggi for development of the Xiamen University township and we estimate that Sunsuria’s total GDV (including on-going projects) is RM12.9b. However, we believe the effective GDV is RM7.7b as some of the projects are subsidiaries (at least 51%-100% owned), save the Xiamen Uni @ Salak Tinggi (50%) owned. If the assets are injected into MAICA, we assume that MAICA will acquire the effective stakes of Sunsuria’s landbanks, which will require substantial equity financing and some debt financing given the smallish size of - Rights issue to finance the acquisition of SunSuria assets? We are assuming that rights issuance will be used to finance the acquisition in which MAICA will acquire all of SunSuria landbanks as identified above. We have derived 2 scenarios; (i) Scenario 1 assumes that land cost makes-up 5% of effective GDV i.e. RM387.4m and this will require a 3- for-1 rights issue which will raise a gross proceed of RM356.3m while the remaining is financed by debt. In this case, net gearing will remain relatively healthy for future landbanking (ii) Scenario 2 asummes that land cost makes up 10% of effective GDV i.e. RM774.8m and this would require a 4-for-1 rights issue which will raise a gross proceed of RM475.1m while the remaining RM299.7m is finance by debt. However, net gearing would have reached our net gearing maximum comfort levels of 0.5-0.6x. (Please refer to Appendix for the details of our post acquisition and post cash call scenario).

- An RNAV play. Based on the scenario above, our hypothetical ex-all fair value could range between RM1.16-RM1.52, which provides decent upsides of 20%-57% to the theoretical ex-all last price of 97 sen. Our fair value assumes: (i) property valuation based on DCF of future profits @ 10% WACC, while we have applied 40% discount (appropriate for small-cap developers) to the property RNAV (ii) Wood Manufacturing valuation is based on 7x PER on FY15E NP. However, there are a few glaring risks to take note off; (i) MAICA needs SC’s approval to convert its classification into a property company else earnings recognition will be on a ‘completion’ basis instead of the preferred ‘progressive’ basis (ii) both scenarios may cause share price overhang due to the significant dilution impact as property earnings take time to recognize. NOT RATED.

Source: Kenanga