Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with an unchanged SOP-based fair value of RM1.28/share and a neutral ESG rating of 3 stars (Exhibits 4 & 5).

• We retain our forecasts as Mah Sing’s 1QFY21 core net profit (CNP) of RM39mil (after excluding forex gains and net reversal of impairment losses) came in within expectations, making up 22% our FY21F net profit and 18% of consensus' estimates vs. 18%–28% for the first quarter over the past 2 years.

• YoY, the group’s CNP increased 30% from: 1) an 11% rise in progress billings; 2) 20% growth in its plastics manufacturing revenue, and 3) 90% lower losses in hotel segment, which partly cushioned the weaker performance in investment holdings.

• Mah Sing chalked up new sales of RM400mil (+62% YoY from RM247mil), attaining 25% of its FY21F sales target of RM1.6bil. 90% of the sales were derived from Klang Valley, in which 50% stemmed from M Luna in Kepong and M Centura in Sentul, while a smaller portion came from Johor (9%) and Penang (1%). Meanwhile, the group’s unbilled sales inched up 2% YoY to RM1.7bil in 1QFY20.

• For the plastic division, revenue climbed 20% while PBT jumped 63% due to a less severe impact from MCO 2.0 as compared to MCO 1.0 in March.

• Revenue from the hotel division was relatively flat YoY at RM1.9mil. However, a lower depreciation charge on hotel assets led to a narrower 1QFY21 LBT of RM0.3mil vs. an LBT of RM3.4mil in 1QFY20.

• Investment holding, which comprises mainly interest income from the deposit of funds and trading of building materials, registered an LBT of RM0.1mil (vs. PBT of RM4.6mil in 1QFY20) due to a 22% decline in its revenue.

• QoQ, 1QFY21 CNP slid by 18% from a 17% reduction in property progress billings during the CNY holidays and higher operating costs from its plastics manufacturing, which was partly offset by sharply lower losses in its hotel segment and investment holdings.

• Moving forward, Mah Sing plans 8 new launches in which 6 of them are in Klang Valley and one each in Johor and Penang. For 2 months in April–May this year, the group achieved new sales of RM251mil vs. RM172mil in 2QFY20.

• Meanwhile, we expect the glove business, which just commenced operations this month with 4 production lines, to contribute positively to the group’s 2QFY21 earnings onwards given the continued impact of the Covid-19 pandemic.

• We continue to like Mah Sing for its: (i) savvy execution and quick turnaround business model; (ii) strength in offering affordable properties at strategic locations; and (iii) additional earnings contribution from its new glove manufacturing business in 2QFY21 onwards.

Source: AmInvest Research - 1 Jun 2021