PP 7767/09/2010(025354)

RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

N ew s Updat e / Bri e f ing No te

13 September 2010
MARKET DATELINE

Mah Sing Share Price

Fair Value
:
:
RM1.72
RM2.06
Raising Fund For Landbank Acquisitions Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (MAHSING; Code: 8583) Bloomberg: MSGB MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 699.2 94.3 11.3 (8.5) 15.2 - 8.2 1.7 12.3 Net Cash 2.4
2010f 1,049.1 116.6 14.0 23.6 12.3 14.7 (52.8) 1.6 13.2 Net Cash 3.3
2011f 1,171.5 143.1 17.2 22.8 10.0 18.4 19.4 1.4 14.9 Net Cash 4.0
2012f 1,389.8 176.3 21.2 23.2 8.1 23.6 20.2 1.3 16.7 Net Cash 4.9
Main Market Listing /Trustee Stock/Syariah Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Raising RM325m. Mah Sing announced a proposed issuance of up to RM325m Issued Capital (m shares) 831.6
Market Cap (RMm) 1,430.3
nominal value of 7-year redeemable convertible secured bonds. The convertible
Daily Trading Vol (m shs) 0.4
bond will have a maturity of 7 years from the date of issuance, with a coupon rate
52wk Price Range (RM) 1.40-1.88
of 3.5% per annum payable on a semi-annual basis. Conversion price will be at a
Major Shareholders: (%)
premium of about 15% to the 5-day volume weighted average market price Tan Sri Leong Hoy Kum 34.2
(VWAMP) of Mah Sing shares on a price-fixing date to be determined by the Board. PNB 25.0
The bond can be converted anytime up to the maturity date of the bond. Details Koperasi Permodalan Felda 7.7
on the bond will be finalised in six months time.
FYE Dec FY10 FY11 FY12
EPS chg (%) - - -
♦ Landbank acquisitions in the pipeline. The proceeds from the bonds will be
Var to Cons (%) (4.6) (6.5) (10.2)
utilised for land acquisitions, as well as for working capital purposes. We believe
bulk of the proceeds will be used mainly for landbank acquisition, as management PE Band Chart
has been eyeing to acquire a large piece of landbank in Klang Valley for township
development. Apart from this, Mah Sing is also interested to acquire some plots of
PER = 14x
land in the KL area that the Government will put up for sale, as announced during
PER = 12x
Invest Malaysia 2010. PER = 10x

♦ Earnings impact. Based on our calculations, the convertible bond would

potentially enlarge Mah Sing’s share base by 150m shares from the current 832m.
Hence, earnings would be diluted in the initial period while waiting for the earnings
to come in from the new landbank (assuming some conversion at the early stage). Relative Performance To FBM KLCI

♦ Risks and concerns. The risks include: 1) cap on lending rate imposed by Bank
FBM KLCI
Negara Malaysia; 2) higher tax bracket for real property gain tax (RPGT); 3)
delays in launches and approvals; and 4) country risks. Mah Sing

♦ Earnings outlook. No change in our earnings forecasts. Coupon / interest

payment for the convertible bond will be capitalised as development cost for the
new landbank. Hence, there will not be any impact on P&L.

♦ Valuation. We maintain our RNAV estimate as the conversion of the bond is

unlikely to take place anytime soon. Hence, we keep our indicative fair value of
RM2.06 unchanged, which is in line with our RNAV per share estimate. Maintain
Outperform.
Loong Kok Wen, CFA
(603) 92802237
loong.kok.wen@rhb.com.my

Please read important disclosures at the end of this report.

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 Briefing highlights

♦ Raising RM325m. Mah Sing announced a proposed issuance of up to RM325m nominal value of 7-year redeemable
convertible secured bonds. The terms for the bond will be finalised in six months time. Preliminary details on the bond
are as follow:

Table 2: Details on proposed bonds issue

Issue size Up to RM325m nominal value

Issue price Will be determined by the issuer prior to issuance

Tenure/Maturity date 7 years from the date of issuance

Coupon Up to 3.5% p.a. payable in arrears on a semi-annual basis

Listing status The bonds will not be listed on any stock exchange. Listing will be sought for the new Mah Sing shares

to be issued arising from the conversion of the bonds on the Main Market of Bursa Malaysia Securities Bhd

Conversion period Convertible at bondholders' discretion immediately after the issue date and up to the maturity date of the bonds

Conversion price Will be at a premium of about 15% to the 5-day VWAMP of Mah Sing shares on a price fixing date to be determined

later
Source: Bursa Malaysia

♦ Landbank acquisitions in the pipeline. Mah Sing is hopeful to seal a deal by year end. Management has been eyeing
on several plots of land in the Klang Valley area. The key one will be a parcel measuring up to 200-acre for township
development. Apart from this, May Sing is also interested to acquire some pieces of land that the Government will put up
for sale, as announced during Invest Malaysia 2010. To recap, these lands are located at Jalan Ampang, Jalan Stonor
and Jalan Lidcol.

♦ Strong sales for all new launches. Take-up rates for all new launches by Mah Sing have been encouraging. M Suites,
which was just launched two weeks ago, is now 75% sold, Kinrara Residence is 60% sold, while Icon Mont’ Kiara is 70%
sold for the first block and 30% sold for the second block. As such, unbilled sales will be replenished rapidly from
RM1.17bn as at Jun 2010.

♦ Occupancy rate at Icon Tun Razak to improve. The occupancy rate at Icon Tun Razak will improve slightly to about
25%, as two new tenants are likely to sign up lease agreement soon. This will save Mah Sing from paying almost a full
yield guarantee of about RM7-8m per quarter. Hence, other expenses that will be incurred in 4Q10 are likely to be lower.

Forecasts

♦ Earnings impact. Based on our calculations, the convertible bond would potentially enlarge Mah Sing’s share base by
150m shares from the current 832m. Hence, we think earnings would be diluted in the initial period while waiting for the
earnings to be contributed from the new landbank. Coupon / interest payment for the convertible bond, on the other
hand, will be capitalised as development cost for the new landbank. Therefore, there will not be any impact on P&L.

Risks

♦ Key risks. The risks include: 1) cap on lending rate imposed by Bank Negara Malaysia; 2) higher tax bracket for real
property gain tax (RPGT); 3) delays in launches and approvals; and 4) country risks.

Valuations and Recommendations

♦ Valuation. We maintain our EPS and RNAV estimates as the conversion of the bond is unlikely to take place anytime
soon. Hence, we keep our indicative fair value of RM2.06 unchanged, which is in line with our RNAV per share estimate.
Maintain Outperform.

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Table 3: RNAV breakdown
Projects Remaining Remaining Equity NPV @ 8.3%
size (acres) GDV (RM mil) interest (RM mil)
Launched
Klang Valley
Residential
- StarParc Point Setapak - 5 100% -
- Hijauan Residence, Cheras 25 233 100% 30.5
- Kemuning Residence, Shah Alam - 13 100% -
- Aman Perdana, Meru-Shah Alam 63 126 100% 14.4
- Garden Residence, Cyberjaya 60 531 100% 62.0
- Perdana Residence 2, Selayang 7 32 100% 32.0
Commercial
- Southgate Commercial Centre, KL - 12 100% -
- iParc Bkt Jelutong - 3 100% -
Penang
Residential
- Residence @ Southbay, Penang 3 22 70% 2.1
Johor
Residential
- Sri Pulai Perdana, Skudai 53 60 100% 60.0
- Sri Pulai Perdana 2, Skudai 68 192 100% 15.3
- Austin Perdana, Tebrau 33 68 100% 6.7
- Sierra Perdana, Tebrau-Plentong 180 467 100% 37.2
Not Launched
Klang Valley
Residential
- The Icon Residence, Mont' Kiara 3 298 100% 30.6
- One Legenda, Cheras 10 92 100% 10.8
- Bayu Sekamat, Hulu Langat, Cheras 6 22 100% 2.3
- Garden Plaza, Cyberjaya 6 288 100% 33.2
- M Suites @ Jalan Ampang 1 257 100% 30.2
- Kinrara JV 13.2 100 100% 10.7
- Kinrara Residence 125.8 730 100% 72.6
Commercial
- Icon City, Petaling Jaya 20 838 100% 85.9
- Star Avenue 18 280 100% 26.1
Industrial
- i-Parc 2 @ Shah Alam 19 167 100% 19.3
- i-Parc 3 @ Bukit Jelutong 11 82 100% 8.9
Penang
Residential
- Legenda @ Southbay 1213 335 70% 33.8
- Icon Residence, Georgetown Penang 3 280 70% 24.9
Commercial
- Southbay City 33 911 70% 74.8
Overseas
China Changzhou Project 87.3 256 51% 10.7

Total 2,061 6,700 735.1

Unbilled sales 131.6
Total 866.7
Shareholders' fund 845.7

Total RNAV 1,712.4

Shares base (mil) 831.6

RNAV per share (RM) 2.06

Discount 0%
Fair value per share 2.06

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Table 4. Earnings Forecasts
FYE Dec (RMm) FY09a FY10F FY11F FY12F

Revenue 699.2 1,049.1 1,171.5 1,389.8

Operating profit 143.7 159.5 199.5 251.4

Interest expenses (2.6) (4.4) (4.8) (5.1)

PBT 144.2 159.9 198.8 250.1
Tax (48.4) (41.6) (51.7) (65.0)
Minority interest (1.6) (1.7) (4.0) (8.8)
Net profit 94.3 116.6 143.1 176.3
EPS (sen) 11.3 14.0 17.2 21.2
GDPS (sen) 4.1 5.6 6.9 8.5

Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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