Investment Highlights

• We maintain our BUY call on Mah Sing Group (Mah Sing) with a lower fair value of RM1.00 (from RM1.13) per share, based on a 45% discount to its RNAV (Exhibit 2). We cut our FY20–21 numbers by 17% and 21% respectively to reflect the timing of recognition due to Covid-19 effects and the weaker-thanexpected market condition. Meanwhile, we are introducing our FY22 net earnings forecast at RM148.5mil.

• Mah Sing reported its FY19 revenue and net profit of RM1,789.7mil (-18.4% YoY) and RM200.3mil (-26.2% YoY) respectively. After the distribution to perpetual sukuk/ securities (RM91.3mil) and adding back the exceptional items (RM24.2mil), its FY19 core net profit of RM133.3mil (-29.9% YoY) came in within our expectation but below consensus estimates.

• The decline in revenue and profit was mainly due to new projects that have limited contribution during their initial stages of construction. Management indicated stronger earnings in the coming quarters with higher revenue recognitions once the construction momentum picks up. FY19 revenue was mostly derived from: (i) M Vertica, M Centura, M Aruna, Southville City, Lakeville Residence, D’sara Sentral, M Residence and M City Jalan Ampang in Greater KL and Klang Valley; (ii) Ferringhi Residence in Penang; and (iii) The Meridin@Medini, Meridin East and Sierra Perdana in Johor.

• On a positive note, Mah Sing has met its sales FY19 target of RM1.5bil, similar FY18 with 56% attributed to properties priced below RM500K. Meanwhile, unbilled sales of RM1.73bil will be progressively recognized over the next 3 years.

• Mah Sing’s balance sheet is healthy with a net cash per share of 20 sen as of FY19. We believe the group is in a strong position to expand its landbank with a cash pile of more than RM1bil. It is also planning to redeem RM540mil (@6.8% p.a.) worth of perpetual sukuk in FY20 which will be financed via bank borrowings. We reckon the redemption of this perpetual sukuk and its conversion into conventional loan will provide savings of about RM10mil per year. The company has proposed a 3.35 sen dividend for FY19, translating into yield of 5.3%.

• Mah Sing is targeting new sales of at least RM1.6bil in FY20. The company has also lined up several launches for 2020 with a combined GDV of RM2.1bil. About 78% of this year’s launches will be concentrated in the central region of Peninsular Malaysia with the key selling points being: (1) affordability; (2) strategic locations; and (3) good connectivity.

Source: AmInvest Research - 2 Mar 2020