Investment Highlights

• We maintain HOLD on Mah Sing Group (Mah Sing) with an unchanged SOP-based fair value of RM0.95/share and a neutral ESG rating of 3 star (Exhibits 4 & 5) as the gross development value of the group’s projects are maintained.

• However, we have reduced our earnings forecast by 25% for FY21F, 8% for FY22F and 3% for FY23F due to lower assumptions for operating margin for the glove business and hotel occupancy rates.

• Mah Sing’s 1HFY21 core net profit (CNP) (excluding forex gain and allowance for impairment loss on financial assets amounting to RM0.9mil) of RM80mil came in below expectations at only 33% of our previous FY21F earnings forecast and 41% of consensus (vs. 43%–60% of 1HFY19–20 net profit). This stems mainly due to: 1) higher-thanexpected pre-operating costs incurred in glove business; and 2) weaker-than-expected hotel contribution.

• Even so, the group’s 1HFY21 CNP increased by 34% YoY from a: 1) 28% rise in progress billings; 2) 35% growth in its plastics manufacturing revenue, which partly cushioned the weaker performance in hotel operation (-14%) and investment holdings (-18%).

• The property development’s 1HFY21 pretax profit rose 44% YoY, thanks to higher sales from the successful RM697mil launches in M Centura/M Arisa in Sentul, M Vertica in Cheras and M Luna in Kepong. Cumulatively, Mah Sing’s 1HFY21 new sales almost doubled to RM801mil (from RM419mil in 1HFY20), already making up 50% of its FY21F sales target of RM1.6bil (Exhibit 3).

• The strong sales were mainly boosted by projects in central region (88%), particularly M Luna and M Centura/M Arisa (both contributed 44% to the group’s total sales), followed by Johor (9%) and Penang (3%). Meanwhile, the group’s unbilled sales grew 9% YoY to RM1.8bil as at 30 June 2021.

• The plastic division managed to turn around from a pretax loss of RM2mil to a 1HFY21 PBT of RM11mil from a 35% YoY revenue increase on higher pallet sales together with the absence of assets write-offs.

• 1HFY21 revenue from the hotel division dropped 14% YoY to RM4.6mil. However, the absence of impairment charges on hotel assets led to a narrower 1HFY21 LBT of RM0.4mil vs. an LBT of RM13.8mil in 1HFY20.

Source: AmInvest Research - 1 Sept 2021