Mah Sing Group Bhd (Aug 17, RM1.45)
Maintain buy with an unchanged fair value of RM2.38: In an announcement to Bursa Malaysia, Mah Sing Group disclosed that its wholly-owned unit, Grand Prestige Development Sdn Bhd, intends to rescind the proposed acquisition of a piece of freehold land in Seremban. Via its solicitors, Mah Sing sent a letter to the vendors of the land, seeking a refund of the 10% deposit it paid amounting to RM36 million.
To recap, Mah Sing proposed to acquire a 1,051-acre (425ha) tract of land in Rantau, Seremban for RM360 million last August. Excluding 91 acres that are subject to acquisitions by the authorities, the net area is about 960 acres. This was to have translated into an implied land cost of approximately RM8.60 per share.
The Seremban land was to have an indicative gross development value (GDV) of RM7.5 billion. This was to be developed into a freehold township over a period of seven to eight years. Based on its announcement, Mah Sing stated that the sale and purchase agreement is “void and/or rescinded, due to, amongst others, misrepresentation and/or the breach of terms and conditions of the agreement by the vendors and/or events that are unlawful have occurred”.
We understand that RM107 million of the estimated RM630 million that Mah Sing had successfully raised in February was supposed to be utilised as part payment for the acquisition of the Seremban land.
With the rescission, we expect Mah Sing to redeploy the amount for other landbanking opportunities and/or accelerate its ongoing developments.
We are “neutral” on this latest development as the Seremban land is not included in our current net asset value (NAV) for Mah Sing.
While we estimate the exclusion of the Seremban land to reduce Mah Sing’s GDV pipeline by 15% to about RM41 billion, earnings visibility remains intact, backed by solid unbilled sales of around RM5.1 billion.
Hence, we retain our earnings forecast and recommendation for Mah Sing. The stock is trading at a deep 47% discount to its NAV.
We maintain “buy” with an unchanged fair value of RM2.38 per share. This pegs the stock at a 15% discount to its NAV per share. — AmResearch, Aug 17
This article first appeared in the digitaledge Daily on Aug 18, 2015. Subscribe here.