Investment Highlights

• We maintain our BUY call on Mah Sing Group (Mah Sing) with an unchanged fair value of RM1.50 per share based on SOP valuation (Exhibit 2). We cut our FY20 net profit forecast by 18% to reflect the timing of recognition while keeping our FY21–22 numbers.
• Mah Sing’s 9MFY20 core net profit (after distribution to perpetual securities) of RM44.7mil (-51.1% YoY) came in below expectations at 57% of ours and 50% of consensus full-year estimates.
• Revenue fell by 21.5% to RM1,058mil while core net profit was down 51.1% to RM44.7mil mainly due to new projects that have limited contribution during their initial stages of construction and the impact of Covid-19 pandemic. Management said it expects stronger earnings in 4QFY20 with higher revenue recognitions once the construction momentum picks up. 9MFY20 revenue was mostly derived by: (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 RM847.1mil for 9MFY20 which are in line with its sales target of RM1.1bil for the year. Meanwhile, unbilled sales of RM1.76bil (QoQ: RM1.64bil) will be progressively recognized over the next 3 years.
• To recap, Mah Sing launched several of its key project in the past 10 months, namely M Oscar (Sri Petaling) in October 2019, M Luna (Kepong) in June 2020 and M Adora (Wangsa Melawati) in July 2020. These projects are well received with take-up rates of 64% for M Oscar South Tower; 85% for M Luna Tower A (860 units); and 82% for M Arisa (Phase 1 & 2). M Adora Tower A (378 units) which was launched in July 2020 recorded a take-up rate of more than 90%. Meanwhile for the remaining of FY20, the company is planning to launch Carya link homes in M Aruna, Rawang and Acacia link homes in Meridin East, Johor with total GDV of about RM250mil.
• In October 2020, Mah Sing announced its venture into rubber glove manufacturing business by building 12 production lines with an estimated total production capacity of up to 3.68bil pieces of gloves per annum. The first 6 lines are scheduled to commence production in April 2021 while the remaining 6 lines are expected to commence in 3QCY2021. We believe the demand of glove will remain stable post-Covid-19 due to heightened awareness and more stringent regulations.
• We believe the mid to long-term outlook for Mah Sing to remain positive backed by: (i) strong sales achieved in the past few quarters; and (ii) the glove manufacturing business’s positive contribution to FY21’s earnings and beyond. We also like Mah Sing’s quick turnaround business model that launches new projects swiftly.

Source: AmInvest Research - 1 Dec 2020