Period  3Q14/9M14

Actual vs. Expectations 9M14 earnings of RM255m are within expectations, making up 75% of street’s, and 76% of our, FY14E estimates. MAHSING registered RM2.45b sales over 9M14 which is on track with our estimates (RM3.3b) but slightly behind of management’s (RM3.6b).

Dividends  None, as expected.

Key Results Highlights QoQ, 3Q14 earnings rose marginally (+1%) which was inline with its topline growth (+1%) and stable pretax margins of 16.2% (+0.1ppt) as billings of on-going projects continued. Its net gearing increased to 0.37x from 0.21x as more landbanking obligations kick in.

 YoY, 9M14 revenue rose by 44% on the back of strong billings from sales (e.g. Icon City, M Residence@Rawang) garnered in previous years. However, pretax margins were compressed by 2.4ppt to 16.5% as lower margin projects were being billed, resulting in earnings only rising by 21%.

Outlook  MAHSING has proposed a rights issue with free warrants to raise up to RM630m right proceeds (entitlement basis and issue price will be fixed later). Post the rights issue, shareholders will be rewarded with a 1-for-4 bonus issue. The rationale for the cash call is mainly to facilitate repayments of recently acquired landbanks (Seremban, Puchong) to ensure that its balance sheet remains healthy. We were not surprised by the announcement given its aggressive landbanking ambitions and we are neutral to positive on the deal (refer overleaf).

 Management is sticking to their FY14E sales target of RM3.6b and is working hard to convert its booking into sales. They admitted the challenge lies with conversion of booking to SPA sales, which will be their main focus in 4Q14 given an outstanding RM1b worth of bookings currently. FY15 sales guidance is still unavailable.

Change to Forecasts No changes to earnings. Unbilled sales of RM5.1b provides close to 2 years visibility.

Rating Maintain OUTPERFORM

Valuation  Currently, we have a TP of RM3.05, based on 33% discount on its FD RNAV of RM4.58, offering share price upside of 32%. Post the exercise, our TP will be adjusted to an: (i) Ex-Rights TP of RM2.48 (ii) Ex-All TP of RM2.10. Our Ex-All TP gives a lower share upside of 25%. We continue to like the stock as it is trading at unwarranted trough valuations of FY14-15E PER of 10.2x-8.8x and offering decent net yields of 3.9%-4.5%. While we note that FY15E sales estimates are likely to be trimmed, it will likely be a sector-wide action. However, MAHSING is likely to enjoy more landbanking news in the near-term. Considering that the stock is a sector laggard, we think its share price downside risk is far less than its peers.

Risks to Our Call Unable to meet its sales target. An up-cycle in Singapore’s property sector. Sector risks, including further negative policies.

Source: Kenanga