Perpetual bond programme of up to RM1.0b (6.9% p.a. coupon rate) announced with successful subscription of the first tranche issuance of RM650m. Purpose of the funds is for working capital and land banking purposes. Net impact is a 2%-4% reduction in FY17-18E CNP and it will have a strong net cash position, pending land banking news. Neutral to slightly positive on the exercise. Maintain MARKET PERFORM and TP of RM1.49.

Perpetual bond programme of up to RM1.0b. MAHSING announced that it has entered into agreements to establish an unrated senior perpetual securities programme of up to RM1.0b. Thus far, we gathered that the first issuance amounting to RM650m nominal value has been oversubscribed with issuance by end Mar- 2017. It carries a semi-annual fixed rate coupon of 6.9% p.a. The purpose of the issuance is for land banking and working capital purposes. There is no definite date for the remaining tranche. Note that this is the second perpetual bond program; recall that the group issued RM540m perpetual bonds back in Apr-2015 at 6.8%.

Surprised by the issuance. Land prices have stabilized but has not really dropped to ?bargain hunting? valuations. Management has always been on the lookout for new land banks having not done so for over 2 years. We were surprised by the issuance as MAHSING?s net gearing was comfortable at 0.02x (4Q16) which allow them to comfortably gear up for land banking. However, we gather that management is looking to expedite construction progress on projects with good take-up rates (expecting RM607m worth of properties seeing VP in 2017) and it appears their land banking pace could be extremely aggressive. The impact to net gearing based on the first issuance of RM650m will turn MAHSING?s FY17E net gearing into a net cash position of 0.12x, excluding any land banking. The interest component itself will lower FY17-18E CNP by 6%-13% but after taking into account project accelerations, FY17-18E CNP is only reduced slightly by 2%-4%.

While the RM650m fresh new funds has no specific allocations for working capital and land banking, we have assumed 50:50 allocations, i.e. RM350m for land banking purpose. Assuming land is financed based on a 70:30 debt-equity ratio, bringing potential funds for land banking to RM500m and land cost-to-GDV ratio of 15%, potential GDV replenishment could be RM3.3b which would increase our FD SoP by 4% to RM2.82. Overall, we are neutral to slightly positive.

Maintain MARKET PERFORM and TP of RM1.49 based on a property RNAV discount of 54% (higher than sector?s average of 50%) or implied SoP discount of 45% to its FD SoP of RM2.72. We will only impute for the new land bank upon announcement. MAHSING enjoys decent unbilled sales visibility and a light balance sheet lends strength to its ability to sustain its dividend pay-out (minimum dividend policy of 40%) which implies current yields of 4.5%, which is attractive compared to big-cap developers? average of 2.7%.

Risks include: (i) weaker/stronger-than-expected property sales, (ii) margin issues, (iii) changes in real estate policies, and (iv) changes in lending environments.

Source: Kenanga Research - 07 Mar 2017