Mah Sing’s 3Q14 results met  expectations. 3Q new sales hit  MYR900m, up from MYR780m in 2Q, on track to hit  its  MYR3.6bn sales target.  In conjunction with the results, the company has called for a rights issue exercise to raise about  MYR630m.  The  proceeds will largely be utilised for  landbanking.  Assuming  a  3-for-10  entitlement  basis  for  the  rights, our TP is lowered to MYR2.41 (4.3% upside). Maintain NEUTRAL.

Within expectations.  Mah Sing’s 3Q14 results came in within our and market expectations. EBIT margin was stable from last quarter, but lower compared to last year’s levels. 

MYR900m new sales in 3Q14.  New sales in 3Q  achieved  MYR900m, from  MYR780m  in  2Q,  bringing  9M  total  to  MYR2.45bn, about 68%  of Mah  Sing’s  full-year  target  of  MYR3.6bn  9M  sales  were  mainly contributed  by  Meridin  @  Meidni  (MYR314m),  Southville  Bangi (MYR580m),  Icon  City  (MYR225m),  D’sara  Sentral  (MYR235m)  and Lakeville Residence (MYR260m). 

Equity  call.  Mah  Sing  has  called  for  rights  issue  together  with  free warrants to raise up to MYR630m. The deal is sweetened  by a 1-for-4bonus  issue  post-rights  and warrants.  More  than 80% of  the  proceeds will  be  used  to  pay  off  new  acquisitions  of  land,  including  the  Rantau land and Puchong land,  with  combined  land cost  of  over MYR1bn.  The amount to be raised is roughly 18% of Mah Sing’s current market cap. The  entitlement  basis  for  the  rights shares and  warrants has  not been fixed, but  according to the announcement, it could either be 1-for-5 for the rights and 1-for-3 for the warrants, or 3-for-10 for the rights and 3-for-10 for the warrants. The issue price is expected to be at a discount of at least 20% to the theoretical ex-rights price. 

Forecasts.  Based on our assumption of  a  3-for-10  entitlement basis for the rights, our FY15-16 earnings are diluted by 4% and 18%. Meanwhile,unbilled sales increased to MYR5.1bn (vs MYR4.79bn in 2Q14).

Maintain  NEUTRAL.  After  factoring  our  assumption  of  3-for-10  rights into our RNAV estimate, our TP is lowered to MYR2.41 (from MYR2.71),based on  an unchanged  15% discount to RNAV.  Note that  we have not imputed the impact of warrants and bonus issue in our valuations.

The rights issue
The equity call is within our expectations  given the amount of new landbank that the company has acquired  this year. To instill investors’ confidence, Tan Sri Leong Hoy Kum (CEO) has sought for underwriting arrangements for those unsubscribed rights. The proposed fund-raising exercise will need to go through shareholders’ approval, with an  EGM likely  to  be  held in  Jan  2015.  Based on the announcement, the rights issue and warrants exercise are expected to be completed by 1Q15, while the bonus issue will likely be completed by 3Q15.

Source: RHB