Investment Highlights

• We maintain our BUY call on Mah Sing Group (Mah Sing) with a lower fair value of RM1.27 per share (from RM1.50) based on SOP valuation (Exhibit 2). We cut our FY22 net profit forecast by 34% to reflect the lower average selling price (ASP) of glove from US$40 per 1,000pcs to US$30 per 1,000pcs. We make no changes to our FY20–21 numbers.

• During a recent engagement with the company, management updated us with its latest development. Mah Sing has lined up several launches for 2021. Although management did not reveal the selling prices and GDVs of the projects, it indicated that more than 75% of them are in the affordable segment.

• In the central region, Mah Sing will roll out a number of projects, namely: (i) the remaining phases of M Arisa Sentul service apartments; (ii) M Vertica, Cheras Tower E serviced apartments; (iii) Southville City, Bangi Cerrado Tower C serviced apartments; (iv) Sensa Tower B serviced apartments; (v) M Aruna, Rawang link homes; and (vi) M Residence, Rawang link homes. Additionally, the company will be launching Southbay City, Penang serviced apartments in the northern region and Meridin East, Johor link homes in the southern region.

• To recap, Mah Sing launched several of its key project in 2020, namely M Arisa Phase 1–3, M Luna (Kepong) in June 2020 and M Adora (Wangsa Melawati) in July 2020. These projects are well received with take-up rates of 96% for Phases 1 & 2 and 42% for Phase 3 of M Arisa; 85% for Tower A and 65% for Tower B for M Luna Tower B. M Adora Tower, which was launched in July 2020, recorded a take-up rate of 90% for Tower A and 40% for Tower B. In December 2020, Mah Sing launched the Carya, M Aruna Phases 2A & B and Acacia 2, Meridin East, which saw take-up rates of 90% and 80% respectively.

• In October 2020, Mah Sing announced its venture into rubber glove manufacturing business, building 12 production lines with an estimated total production capacity of up to 3.68bil pieces of gloves per annum. Management said that the progress is within its schedule and the first 6 lines are expected to commence production in April 2021 with the remaining 6 lines in 3QCY21.

• We believe the demand for gloves will remain stable post-Covid-19 due to heightened awareness and more stringent regulations. We reckon that ASP would decline after 2021 as there is no longer a rush for gloves compared to what happened at the beginning of the pandemic. However, we expect ASP to stabilise at a higher level than the pre-pandemic level due to the broader usage of gloves. Hence, we cut our FY22 net profit forecast by 34% to reflect the lower average selling price of glove to US$30 per 1,000 pcs from US$40 per 1,000 pcs while making no changes to our FY20–21 numbers.

• Mah Sing’s balance sheet remains healthy with net cash position as of 9MFY20. We believe the group is in a strong position to expand its landbank with a cash pile of over RM1.1bil. We believe the mid to long-term outlook for Mah Sing remains 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. At its current share price, it offers a potential upside of more than 50%.

Source: AmInvest Research - 8 Jan 2021