KUCHING: Mah Sing Group Bhd (Mah Sing) will be in a better position for ‘bargain opportunities’ on land deals as its net gearing will improve on the back of its rights share issue for which it has fixed the price at RM1.42 per right share.
Following its proposed cash call exercise in December last year, the groups has now fixed the issue price at RM1.42 per right share on the basis of one-for-three rights issue with free detachable warrants for the rights shares on a three-for-five basis.
The exercise price has been fixed at RM2.38 for each five-year warrant or 16 per cent higher to the theoretical ex-rights price; excluding bonus, exercise price will be RM1.98.
Remarking on the news, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said the exercise would raise RM397 million in cash and majority of the proceeds would be utilised for landbanking activities, pointing out that Mah Sing intended to landbank up to RM5.5 billion worth of gross development value (GDV).
“We gather that management is still negotiating land deals, although there is no clarity on acquisition timeline or size. Nonetheless, it does ready the company for bargain opportunities.
“Nevertheless, Mah Sing has been aggressively replenishing sizable land in the past five years and thus we expect the same trend to continue.
“As mentioned earlier, the group can bag approximately RM1.1 billion worth of land, based on a 70:30 debt-equity ratio, which implies potential new GDV of RM7.4 billion,” it said.
It noted that post the proposed exercise and major cash commitment of the Bangi’s landbanking, net gearing would improve from 0.52 times to 0.38 times in financial year 2013 (FY13), implying higher gearing headroom.
Kenanga Research made no changes to FY12 and FY13 earnings estimates (at RM217 million and RM266 million respectively), noting that its in-house estimates fully reflected the rights and bonus issue.
Post the rights and bonus issue, the research arm’s fully-diluted sum-of-parts revised net asset value (RNAV) would be adjusted down by 29 per cent to RM2.50 from RM3.50 as it had conservatively factored in new GDV assumptions of RM3 billion plus the entire corporate exercise.
It noted the potential forecast risks (inability to meet sales targets or replenish landbank and sector risks, including negative policies) and maintained the stock’s target price of RM2.45 per share.