Investment Highlights

• We upgrade Mah Sing from HOLD to BUY in view of a positive long-term outlook and direction towards affordable housing as proposed by the Malaysian government during Budget 2019 by launching more affordably priced developments that cater to market demands. Moreover, its quick turnaround business model limits its exposure to land withholding risks, resulting in better cash flow management.

• We raised our FV to RM1.21 (Exhibit 1) from RM1.20, based on a 40% discount to its RNAV and we revised our FY18-20 earnings forecasts upwards by 3.5%, 3.6% and 3.8% respectively. Its current share price offers a potential upside of 17%, and is trading at a forward PER of 9.5, 9.1 and 8.7x for FY18-FY20 respectively.

• Mah Sing reported its 9MFY18 revenue and net profit of RM1.68bil (-22.1% YoY) and RM205.6mil (-24.1% YoY) respectively. 9MFY18 net profit of RM205.6mil is above our forecast but in line with consensus, constituting 80% and 73% of our and consensus full-year estimates respectively. The decline in revenue and profit was attributable to more new sales secured from new projects which have limited contribution during their initial stage of construction. 9MFY18 EBIT margin remained stable at 16.1% vs. YoY’s 16.4%.

• Mah Sing chalked up new sales of RM1.22bil, and is on track to achieve its FY18 target of RM1.8bil. The sales were mainly secured from new launches in 2018 which were mainly priced below RM500,000. Unbilled sales of RM2.5bil (QoQ –RM2.6bil) will be progressively recognized over the next 3 years.

• We believe Mah Sing’s long-term prospects to be positive as its strategy to focus on the affordable residential is a right move due to the persistent demand for the best products within this segment. The company has no problem clearing its completed units with inventory level down to RM515.0mil in 9MFY18 from RM629mil in 4QFY17. Meanwhile, balance sheet is stable with net cash position.

• Currently, Mah Sing has total landbank of 2,108 acres, with a GDV of RM24bil, which provides earnings visibility and will drive the company’s growth going forward. Projects in the central region that are priced under RM500,000 include M Vertica, Cheras (high-rise residential – remaining GDV RM1.74bil), M Centura, Sentul (high-rise residential – remaining GDV RM985mil) and Southville City@KL South, Bangi (mixed development – remaining GDV RM9.03bil).

• Projects from the other regions that are also part of the group’s affordable housing strategy include Meridin East, Johor (residential township & integrated development – remaining GDV RM4.6bil) with starting price RM450-500K and the M Vista, Southbay@Bayan Lepas, Penang (high-rise residential – remaining GDV RM1.5bil) with prices starting from RM345K.

Source: AmInvest Research - 19 Nov 2018