We met up with Datuk Ter Leong Yap, the 51% stakeholder of the company and owner of private property development vehicle Sunsuria, and his team. We also visited Sunsuria’s Xiamen University Township site @ Salak Tinggi. We came away feeling more comforted that its recent cash call could result in multiple folds in earnings growth over the next few years. We are estimating FY15*-16E earnings of RM15.6m*-RM61.1m or 337%-291% YoY growth based on property sales of RM650m-RM710m. Our ex-all FV of RM1.22 provides 39% share price upside to its TEAP last price of 88 sen (last price: RM1.55). NOT RATED.

RTO to be completed in Aug-14. We had highlighted the stock earlier in our On The Radar note (27/2/14). Since then, the group has announced a cash call exercise (rights issue and placement) which should raise funds of up to RM356m and it will also be announcing the heads of agreement for the earmarked landbanks for injections. They will be holding their EGM on 12th May and is expected to complete the exercise in Aug-2014. The company’s name will also be changed to Sunsuria. Post-exercise, their market cap should increase to RM609.7m (based on TEAP of 88 sen).

Total GDV of RM10.6b (effective: RM6.1b), which can last the group 7-9 years assuming 10%-20% YoY growth in sales. The cash call will be used to finance the acquisition of the following landbanks, namely Xiamen University Township @ Salak Tinggi (XiamenU), Medini@Iskandar Malaysia, Suria Hills @ Setia Alam and 7th Avenue 2, Setia Alam, with total 403 acres. Together with the projects already owned by MAICA (Suria Residensi, Trivo@Suria Jelutong), total landbank is 407ac. Post-RTO, the company will be in a net cash position. But we do expect net gearing to rise to c.0.3x over the next 2 years after servicing their deferred land payments. Nevertheless, we are comfortable with developers with less than 0.5x net gearing.

We like the new entity for the following reasons; (i) landbank cost will likely be at 10% of total GDV which is considered attractive vs. usual midteens levels, (ii) multiple-fold earnings growth due to onset of new property project contributions, (iii) solid management with extensive property experience and assurance that future landbanking will be done via the listed entity to avoid conflict of interests, and (iv) strong track record of securing land via JVs, which also lightens balance sheet risks – in fact, we do not discount the possibility of increased landbanks via their partnership with Sime Darby to develop Xiamen University Township.

Ex-all FV of RM1.22 based on 40% discount to its property RNAV postrights issuance (in-line with mid-cap developers under our coverage), 7x FY15E PER for its wood-based business and fully diluted for the post rights placement and warrants. Our FV implies FY15-16E PER of 54x-14x (current: 39x-10x) as it will take some time for the property billings to catch up given the dilution impact from rights and placement. Most midcap developers are trading at 7x-8x Fwd PER but these developers will only deliver mid-teens growth on average.

Our take. MAICA’s share price has risen sharply (YTD gains of 83%) given newsflow on the RTO of MAICA by Sunsuria. While our ex-all FV offers attractive upsides, we reckon that investors may stay on the sideline until the rights issuance is completed. Thereafter, we expect some shares overhang, which could provide investors with more compelling entry points.

Source: Kenanga