News

MAHSING announced that it will repurchase RM315m nominal value of its convertible bond (CB*) for RM337.1m, which will be cancelled thereafter. The repurchase will be funded by the unutilized rights proceeds of RM363m. The group recently obtained shareholders’ approval to redeploy the funds for working capital, landbanking and/or repurchase of these bonds.

Comments

The CBs are currently “in-the-money” based on the conversion price of RM1.14 and expiration is in Jun- 2016; full conversion will increase its share base by 11.5%.

We were not surprised by this news since there are unutilised funds with no new major growth drivers while the Seremban and Puchong land deal did not compensate investors for such dilution shocks, i.e. prevention of dilution risks.

Our FY16E net gearing remains largely unchanged at 0.12x while gross gearing is reduced to 0.41x from 0.50x. Nonetheless, we are glad with the utilisation of funds which: (i) remove unnecessary dilution risks,  especially when earnings may plateau in the future due to the weak property market, and (ii) alleviate interest bearing balance sheet obligations which will help mitigate cost increases.

Outlook

We expect the upcoming FY15 results to meet earnings and sales (RM2.3b) expectations. The group is guiding FY16 sales of RM2.3b which is close to our assumptions of RM2.4b.

Forecast

While there are interest cost savings (c. 4% p.a. of earnings) from the CB, it will not be felt immediately as the current interest cost is being capitalised over on-going projects.

Rating

Maintain MARKET PERFORM

Valuation

Impact to our FD RNAV is slightly positive after seeing a 6% increase to RM2.99. While we laud management for its prudence, we are revisiting our sector valuations with a downside bias. Ahead of that, we widen our applied FD RNAV discount to 55% or  close to its 6-year’s mean of 55% (from 48% @ +1SD), implying a lower TP of RM1.35 (RM1.47 previously). The stock has made new 6-year’s trough valuations of 7.7x FY16E PER and net yield of 5.1%. While this appears attractively low, we reckon investors are concerned that the overall property earnings cycle maybe due for a de-rating. However, we may revisit our valuations if guidance for FY16E is better than expected.

Risks to Our Call

Weaker-than-expected property sales.Higher-thanexpected sales and administrative costs.Negative real estate policies.Tighter lending environments.