RESEARCH

27 February 2014

On Our Radar

Malaysia Aica Bhd

Transformation Into A Property Play
INVESTMENT MERIT

Rating Last Price Kenanga Consensus NOT RATED N.A.

Fair Value Ex-all: RM0.97 Ex-all: RM1.16-RM1.52 N.A.

Malaysia Aica Bhd 3743 Building Materials Bldg & Construct Prod-Misc 79.9% 256.5 158.4 1.75 0.50 2,679,364 39% 0.5 8.53

Changing the face of Maica. Of late, MAICA has attracted a lot of attention due to the potential injection of SunSurias assets as Datuk Ter Leong Yap (who is also the founder and major shareholder of SunSuria) will soon own >51% of the company post the General Offer. Datuk Ter has expressed intentions of nurturing MAICA to become a property company from its current wood manufacturing business, which will be maintained. Maiden venture into property development. To recap, MAICA has acquired 2 pieces of Bukit Jelutong landbank for RM56m. Both parcels of lands are estimated to have a total GDV of RM296.6m. To finance the land acquisitions and working capital requirements, a placement of 28m new shares at 50 sen (proceeds: RM79.2m) was issued on 28-Jan-14. Post placement, the company has a healthy balance sheet with a net gearing of 0.15x and total shareholders funds of RM85.3m. Assuming the property project starts selling by end-FY14 to early-FY15, we believe property contributions will start flowing in from FY15 and we estimate FY14-15E net profit of RM1.3m (+37.7% YoY) - RM2.5m (+83.2% YoY). More SunSuria assets to be injected into MAICA? Sunsuria has 3 major landbanks; (i) 28 acres in Setia Alam, (ii) 82 acres in Medini, Johor, and (iii) 300 acres in Salak Tinggi for development of the Xiamen University township and we estimate that Sunsurias total GDV (including on-going projects) is RM12.9b. However, we believe the effective GDV is RM7.7b as some of the projects are subsidiaries (at least 51%-100% owned), save the Xiamen Uni @ Salak Tinggi (50%) owned. If the assets are injected into MAICA, we assume that MAICA will acquire the effective stakes of Sunsurias landbanks, which will require substantial equity financing and some debt financing given the smallish size of MAICAs current balance sheet. Rights issue to finance the acquisition of SunSuria assets? We are assuming that rights issuance will be used to finance the acquisition in which MAICA will acquire all of SunSuria landbanks as identified above. We have derived 2 scenarios; (i) Scenario 1 assumes that land cost makes-up 5% of effective GDV i.e. RM387.4m and this will require a 3for-1 rights issue which will raise a gross proceed of RM356.3m while the remaining is financed by debt. In this case, net gearing will remain relatively healthy for future landbanking (ii) Scenario 2 asummes that land cost makes up 10% of effective GDV i.e. RM774.8m and this would require a 4-for-1 rights issue which will raise a gross proceed of RM475.1m while the remaining RM299.7m is finance by debt. However, net gearing would have reached our net gearing maximum comfort levels of 0.5-0.6x. (Please refer to Appendix for the details of our post acquisition and post cash call scenario).

Stock Information Stock Name CAT Code Industry Industry Sub-sector YTD stock price chg Market Cap (RM m) Issued shares (m) 52-week range (Hi) 52-week range (Low) 3-mth avg daily vol: Free Float Beta Altmans Z-score Major Shareholders TER EQUITY SDN BHD TER LEONG YAP HOK YIM WONG Financials FYE March (RMm) Revenue EBIT Net Profit (NP) EPS (sen) BV/Share (RM) PER Price/BV (x) Net Gearing (x) NDPS (sen) Dividend Yield (%) Quarterly Financial Data Revenue Revenue Growth (QoQ) EBIT OP Margin Net Profit (NP) EPS (sen) EPS Growth (QoQ)

28.81% 21.30% 6.82%

2013A 18.5 1.7 1.0 0.7 0.5 221.7 3.1 0.2 0.0 0.0 4Q13 4.69 6% 0.35 8% 0.11 0.09 -40% PER (FY14) N.A. 8.7 4.6 6.7 158.1 17.23

2014E 19.1 1.8 1.3 1.0 0.6 158.1 2.9 0.2 0.0 0.0 1Q14 5.04 7% 0.61 12% 0.45 0.34 278% Div. Yld (%) 3.3 5.6 N.A. 4.4 0.0 3.44

2015E 26.8 3.2 2.5 1.9 0.6 86.3 2.9 0.2 0.0 0.0 2Q14 5.01 -1% 0.47 9% 0.30 0.23 -32% Mkt Cap (RMm) 243.0 560.4 166.0 256.5 -

An RNAV play. Based on the scenario above, our hypothetical ex-all

fair value could range between RM1.16-RM1.52, which provides decent upsides of 20%-57% to the theoretical ex-all last price of 97 sen. Our fair value assumes: (i) property valuation based on DCF of future profits @ 10% WACC, while we have applied 40% discount (appropriate for small-cap developers) to the property RNAV (ii) Wood Manufacturing valuation is based on 7x PER on FY15E NP. However, there are a few glaring risks to take note off; (i) MAICA needs SCs approval to convert its classification into a property company else earnings recognition will be on a completion basis instead of the preferred progressive basis (ii) both scenarios may cause share price overhang due to the significant dilution impact as property earnings take time to recognize. NOT RATED.

Peers Comparisions CREST BUILDER TAMBUN INDAH GLOBAL ORIENTAL BHD Average MALAYSIA AICA BHD FBMKLCI

The Research Team research@kenanga.com.my +603 2166 6822

PP7004/02/2013(031762)

KENANGA RESEARCH

On Our Radar

27 February 2014

Appendix To derive the post acquisition and post cash call scenario, we have assumed the followings. Scenario 1: Assuming land cost of 5% of effective GDV i.e. RM387.4m and a 3 for 1 rights issue. In this assumption, the land cost is quite low and favourable to MAICA but not to SunSuria. However, this enables a scenario which provides a low net gearing post the acquisition and cash call exercise, which provides more gearing headroom for MAICAs future landbanking. Assumptions: 1. 2. 3. MAICA acquires all of Sunsurias landbanks from which implies an effective GDV of RM7.7b. Assume that the company acquires the effective stakes of subsidiaries, JCE or wholly owned entities. Total GDV, including those already owned by MAICA (i.e. Bukit Jelutong land) is RM8.0b. To finance the land acquisitions, we assume that MAICA will do a 3 for 1 rights issue. We believe that pricing would be below the recent placement price of 85 sen. Hence, we have assumed that total gross proceeds will be RM356.3m from rights issue at 75 sen, while the balance RM31.1m will be financed by debt. Post rights issuance, the companys net gearing will be 0.10x or healthy enough for more future landbanking. MAICA is looking for more land banks to turn inself into a sizeable developer. Property Valuation: Based on DCF of future profits at net margin of 22%, over 8 years, 10% WACC. We have also applied 40% discount (appropriate for small-cap developers) to the property RNAV. Wood Manufacturing: Assumed 7x PER on FY15E NP of RM1.2m.
Effective GDV (RM'm) 297 7,748 Yrs 3 8 Total Prop DCF Prop Book value Property RNAV Discount to RNAV Property Valuation FY15E earnings (RM'm) Wood Business 1.2 PER (x) 7 Fair Value of Existing Business 8.4 NP (RM'm) 48 1,743 WACC 10% 10% NPV (RM'm) 56 1,163 1,218.9 370.3 1,589.3 40% 953.6

4. 5.

Projects Existing GDV in MAICA (Bukit Jelutong) New injection from Sunsuria (Setia Alam, Medini, Salak Tinggi)

SOP Enlarge Shares ('m) Ex-all Fair Value (RM) Theoretical Ex Price (cum price of RM1.61)

961.9 633.4 1.52 0.97

Financing Structure SunSuria Total GDV (before accounting for shareholding) SunSuria Effective GDV Assumed land cost (5% of Effective GDV) Equity Financing Debt Financing 9M14 & Post Recent Placement Cash Total Debt Total Equity Prop Book Value Net Gearing 28.9 42.0 85.3 14.0 0.15

RM'm 12,900.0 7,748.0 387.4 356.3 31.1 Post Rights & Acquisition of Sunsuria lands 28.9 73.1 441.6 370.3 0.10

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On Our Radar

27 February 2014

Scenario 2: Assuming land cost of 10% of effective GDV i.e. RM774.8m and a 4 for 1 rights issue. In this assumption, the acquisition price is considered fair for SunSuria and MAICA. However, this scenario results in net gearing of 0.56x which would reach our maximum comfort net gearing levels of 0.5x-0.6x. At such levels, future landbanking would be extremely difficult. Assumptions: 1. 2. 3. MAICA acquires all of Sunsurias landbanks from which implies an effective GDV of RM7.7b. Assume that the company acquires the effective stakes of subsidiaries, JCE or wholly owned entities. Total GDV, including those already owned by MAICA (i.e. Bukit Jelutong land) is RM8.0b. To finance the land acquisitions, we assume that MAICA will do a 4 for 1 rights issue. We believe that pricing would be below the recent placement price of 85 sen. Hence, we have assumed that total gross proceeds will be RM475.1m from rights issue at 75 sen, while the balance RM299.7m will be financed by debt. Post rights issuance, the companys net gearing will be 0.56x, which would be at our maximum comfort net gearing levels of 0.5-0.6x. Property Valuation: Based on DCF of future profits at net margin of 19%, over 8 years, 10% WACC. We have also applied 40% discount (appropriate for small-cap developers) to the property RNAV. Wood Manufacturing: Assumed 7x PER on FY15E NP of RM1.2m
Effective GDV (RM'm) 297 7,748

4. 5.

Projects Existing GDV in MAICA (Bukit Jelutong) New injection from Sunsuria (Setia Alam, Medini, Salak Tinggi)

Yrs 3 8

NP (RM'm) 48 1,453 Total Prop DCF Prop Book value Property RNAV Discount to RNAV Property Valuation

WACC 10% 10%

NPV (RM'm) 56 969 1,025.2 489.1 1,514.3 40% 908.6

FY15E earnings (RM'm) Wood Business 1.2

PER (x) 7 Fair Value of Existing Business 8.4

SOP Enlarge Shares ('m) Ex-all Fair Value (RM) Theoretical Ex Price (cum price of RM1.61)

916.9 791.8 1.16 0.97

Financing Structure SunSuria Total GDV (before accounting for shareholding) SunSuria Effective GDV Assumed land cost (10% of Effective GDV) Equity Financing Debt Financing 9M14 & Post Recent Placement Cash Total Debt Total Equity Prop Book Value Net Gearing 28.9 42.0 85.3 14.0 0.15

RM'm 12,900.0 7,748.0 774.8 475.1 299.7 Post Rights & Acquisition of Sunsuria lands 28.9 341.7 560.4 489.1 0.56

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KENANGA RESEARCH

On Our Radar

27 February 2014

Daily Charting Malaysia Aica Berhad

Comment: MAICAs share price is pausing for a breather following an impressive run up over the past few months. Any price weakness towards the RM1.60 (S1) level has thus far been met with strong buying support, and this reinforces our view that the current consolidation phase is likely to be temporary. The overall technical picture remains bullish, and we expect renewed buying interest fairly soon. Should the recent high of RM1.75 (R1) be taken out in the near-term, MAICA would then have a clear path towards RM2.00/2.05 (R2).
Source: Kenanga Research

About the stock: Name Bursa Code CAT Code

: : :

Malaysia Aica Berhad MAICA 3743

Key Support & Resistance level Resistance : RM1.75 (R1) Support : RM1.60 (S1) Outlook : Bullish

RM2.05 (R2) RM1.46 (S2)

RM2.23 (R3) RM1.27 (S3)

CORPORATE STRUCTURE

BUSINESS OVERVIEW
MAICA is an investment holding company. The company, through its subsidiaries, manufactures prefabricated doors, door frames, knocked down furniture and parts, moldings from rubber wood, and ice blocks. MAICA also provides hire purchase. The group operates in Malaysia and the United States. Malaysia Aica Bhd was incorporated under the Companies Act 1965 on 4th December 1968 as a limited company. It has since 7th March 1984 been listed on Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange).

BUSINESS SEGMENTS
MAICA mainly operates in two segments: manufacture of wood products and hire purchase and other financing.

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This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my Chan Ken Yew Head of Research

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