Mah Sing Group Berhad - 1HFY20 In Line

Date: 01/09/2020

Source  :  KENANGA
Stock  :  MAHSING       Price Target  :  0.75      |      Price Call  :  HOLD
        Last Price  :  0.89      |      Upside/Downside  :  -0.14 (15.73%)

2QFY20 CNP of RM2.5m brought 1HFY20 to RM14.2m – broadly within our estimate (24%) but below consensus (12%). 1HFY20 sales of RM419m is deemed below our target of RM1.6b in view of the tougher sales conversion climate. Lower FY21E earnings by 9% after accounting for reduced sales target of RM1.1b this year. Maintain Market Perform on higher TP of RM0.75 after adjusting FY21E PBV valuation higher for our positive take on their healthcare venture.

Within expectations. 2QFY20 CNP of RM2.5m brought 1HFY20 CNP to RM14.2m – broadly within our expectation (24%) but below consensus (12%). While we expect the subsequent two quarters to improve, we deem the results below consensus as its full-year profit estimate of RM115m implies an average of RM50m/quarter for 2HFY20 – stronger than the pre-pandemic levels. No dividends declared as expected.

We derive our 2QFY20 CNP after reversing out: (i) RM10m impairment from Meridin Medini Hospitality asset, and (ii) RM4.5m loss arising from a fire at Mahsing’s plastic division during the MCO period.

Management has guided for lower property sales of RM1.1b (from RM1.6b) as they lower their launch target to RM0.9b (from RM1.2b) considering that the current strict bank loan approvals might result in longer sales conversion span. Consequently, 1HFY20 sales of RM419m (backed by RM777m of launches) is deemed below our RM1.6b target.

Highlights. 2QFY20 CNP of RM2.5m declined 79% QoQ mainly due to higher perpetual securities payment of RM27.2m vs 1QFY20’s perpetual sukuk payment of RM18.4m. YoY, 1HFY20 CNP of RM14.2m plunged 76% as a result of the Covid-19 lockdowns which saw all business divisions recording weaker pre-tax levels on the back of lower revenue (- 28%).

Growth initiatives. Mahsing has stated their intentions to branch into the healthcare industry amidst this Covid-19 crisis. While there have been many new entrants hopping onto the healthcare bandwagon, we believe Mahsing differs from other entrants given their long track record within the plastic manufacturing industry – providing them the edge to jumpstart operations quicker and more competitively. We understand that this business decision will be for the long term with gradual allocation of capital towards this initiative. Hence, we are overall positive on the venture.

Earnings adjustment. In line with management’s lower sales guidance, we lower our sales target to RM1.1b (from RM1.6b) this year – resulting in a 9% reduction in FY21E earnings.

Maintain Market Perform with higher TP of RM0.75 (from RM0.57) after ascribing higher FY21E PBV valuations of 0.56x pegged at -1.0SD below mean (from 0.43x at -1.5SD). Our higher valuation is premised on the its initiative to leverage onto their existing manufacturing expertise to branch out into high growth areas such as the healthcare industry amidst this Covid-19 pandemic.

Source: Kenanga Research - 1 Sept 2020

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