Investment Highlights

• We maintain our BUY call on Mah Sing with a lower fair value of RM1.20 per share (from RM1.25), based on a 40% discount to its RNAV (Exhibit 2). We cut our FY19–21 net profit forecasts 16%, 9% and 6% respectively by: (i) applying higher depreciation charges; and (ii) lowering our revenue estimate due to timing of recognition.

• Mah Sing reported its 1HFY19 revenue and net profit of RM931.6mil (-20.7% YoY) and RM105.3mil (-22.1% YoY) respectively. Stripping off distribution to perpetual sukuk/ securities amounting to RM45.4mil, 1HFY19 core net profit of RM59.9mil (-40.4% YoY) came in below expectations at 31% and 29% our and consensus full-year estimates.

• The decline in revenue and profit was mainly due to new projects which have limited contribution during their initial stages of construction. Meanwhile, the adoption of the MFRS16 has resulted an increase in depreciation charges by 90%. Nonetheless, 1HFY19 EBIT margin remained stable at 15.5%, vs. YoY’s 16.0%. Management indicated stronger earnings in coming quarters with higher revenue recognitions once when construction momentum starts to pick up.

• On a positive note, Mah Sing is on track to meet its target with new sales of RM761.4mil for 1HFY19, mainly secured from new launches in 2018 which were mostly priced below RM500,000. Mah Sing will maintain its sales target of RM1.5bil for FY19. Unbilled sales of RM1.65bil (QoQ: RM1.58bil) will be progressively recognized over the next 3 years.

• Mah Sing’s balance sheet is healthy with net cash per share of 32 sen as of 1HFY19 (vs. QoQ’s 29 sen). We believe the group is in a strong position to expand its landbank with a cash pile of more than RM1.3bil.

• To recap, Mah Sing has acquired 3 prime lands in KL earlier this year, namely MOscar (Kuchai Lama, next to Happy Gardens), MLuna (Kepong) and MAdora (Wangsa Melawati). All three projects are targeted towards the affordable segment at strategic locations with a starting price of below RM500K.

• Despite stronger quarters ahead as guided by management, we are more prudent in the timing of recognitions, hence, we are reducing our FY19–21 net profit forecasts by 16%, 9% and 6% respectively. While the additional depreciation charges will have no impact on our valuation, lower revenue recognition will reduce our RNAV by 5 sen to RM1.20 per share.

• We believe the long-term outlook for Mah Sing remains positive backed by strong sales achieved in the past few quarters. Moreover, we expect recent acquisitions to be strong sellers given their strategic locations and attractive pricing. Maintain BUY recommendation.

Source: AmInvest Research - 3 Sept 2019