Mah Sing will repurchase MYR315m worth of convertible bonds. Maintain NEUTRAL with a lower TP of MYR1.36 (9% upside), as we raise our discount to RNAV to reflect the weakening property market conditions. Although the repurchase should be viewed positively due to the elimination of dilutive impact, it also signals a challenging operating environment for developers who are now cautious on landbanking.

Repurchase convertible bonds. Mah Sing has entered into an agreement to repurchase MYR315m worth of convertible bonds (CB) at a purchase consideration of MYR337.1m. The CB will then be cancelled after the amount is paid by end-1Q. The repurchase is a move to utilise the balance of unused cash arising from the rights issue exercise last year, which was mainly tareted to fund two landbank acquisition deals that were terminated subsequently.Recall that Mah Sing raised about MYR630m from the rights issue, and MYR267m has been deployed to fund the construction works of property projects.

Our view. We are overall neutral on this repurchase of CB. Apart fromeliminating the dilutive impact from the CB upon its maturity in 2018 and scheduled redemption in Jun 2016 (at a conversion price of MYR1.14 and hence 276.3m shares if converted), the repurchase also indicates that Mah Sing’s cash flow is not tight and it still has cash to fund all its existing projects. The company’s net gearing stood at 24% (including sukuk) as at 3Q15. On the other hand, the repurchase also signals that the market conditions are challenging, and management is cautious and therefore chooses to redeem the bonds instead of using the cash to expand development landbank.

Maintain NEUTRAL. We maintain our NEUTRAL rating. After factoring in the impact of this convertible bond repurchase, our TP is lowered to MYR1.36 (from MYR1.49), as we raise our discount to RNAV to 40% (from 35%) to reflect the weakening property market conditions that hit all developers. The selldown in the equity market and a plunge in crude oil price since the beginning of 2016 have led to further deterioration in market sentiment and economic growth outlook.