Investment Highlights

• We maintain our BUY call on Mah Sing Group (Mah Sing) with an unchanged fair value of RM0.79 per share, based on a 60% discount to its RNAV (Exhibit 2). We make no changes to our FY20–22 net profit forecasts.

• Mah Sing reported its 1QFY20 revenue and net profit of RM371.1mil (-17.6% YoY) and RM30.1mil (-45.3% YoY) respectively. After the distribution to perpetual sukuk/ securities (RM18.4mil), its 1QFY20 core net profit of RM11.7mil (-12.1% YoY) came in within our expectation but below consensus estimates. Despite making up 12% of our full-year forecast, we deem this to be in line with expectation as we expect stronger earnings in 2HFY20.

• The decline in revenue and profit was mainly due to new projects that have limited contribution during their initial stages of construction and the impact of the movement control order (MCO) amidst the Covid-19 pandemic. Management said it expects stronger earnings in the coming quarters with higher revenue recognitions once the construction momentum picks up. 1QFY20 revenue was mostly derived from: (i) M Vertica, M Centura, M Aruna, Southville City, Lakeville Residence and D’sara Sentral in Greater KL and Klang Valley; (ii) Ferringhi Residence in Penang; and (iii) The Meridin@Medini, Meridin East and Sierra Perdana in Johor.

• Mah Sing chalked up new sales of RM247mil (-17%) for 1QFY20 while maintaining its RM1.6bil FY20 sales target. On a positive note, the company has received RM37mil new bookings per week via its digital platforms during the MCO period and is in the midst of converting the bookings into sales. Meanwhile, unbilled sales of RM1.69bil (QoQ: RM1.73bil) will be progressively recognized over the next 3 years.

• Mah Sing has redeemed its RM540mil (6.8%) perpetual sukuk while at the same time, issued RM600mil new Islamic mediumterm notes (sukuk murabahah) at 4.35% per annum. We reckon that this conversion will provide savings of about RM13mil per year. Meanwhile, we believe the group is in a strong position to expand its landbank with a cash pile of more than RM1bil.

• The company has lined up several launches for the rest of FY20 with 84% of them priced below RM700K, concentrated in the central region of Peninsular Malaysia with the key selling points being: (1) affordability; (2) strategic locations; and (3) good connectivity.

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

Source: AmInvest Research - 1 Jun 2020