Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with a lower SOP-based fair value of RM0.93/share and a neutral ESG rating of 3 star (Exhibits 4 & 5) to reflect lower forecasted profits from glove business.

• Mah Sing’s FY21 core net profit (CNP) (excluding forex gain, property, plant and equipment written off and allowance for impairment loss on financial assets totaling RM1mil) of RM162mil was below our forecast by 11%, but above consensus by 27%. We have reduced our earnings forecast by 3% for FY22F and 5% for FY23F due to lower utilization rate assumptions for the glove business.

• Mah Sing achieved its FY21 sales target of RM1.6bil (+45% YoY) (Exhibit 3). The higher sales from its M-series projects, Southville City and Southbay City supported the property development’s FY21 64% operating profit surge YoY.

• The strong sales were mainly boosted by projects in the central region (86%), particularly M Luna and M Centura/M Arisa (both contributed 43% to the group’s total sales), followed by Johor (10%) and Penang (5%). Meanwhile, the group’s unbilled sales grew 16% YoY to RM1.9bil as at 31 December 2021.

• Mah Sing is targeting new FY22F sales of RM2bil with at least 7 new launches worth RM2.4bil, of which 94% are priced below RM700K and 60% below RM500K.

• The manufacturing division reversed to an operating loss of RM8mil in FY21 from an operating profit of RM16mil in FY20 mainly due to its glove plant's pre-operating expenses and lower absorption of overhead costs, primarily from low production output during its early months of operation.

• The glove segment is expected to break even in FY22F following the completion and commissioning of all 12 production lines in December 2021.

• While the hotel division’s FY21 revenue dropped 25% YoY to RM10mil, the absence of impairment charges on hotel assets led to the segment just breaking even vs. a LBT of RM15mil in FY20.

• QoQ, 4QFY21 revenue surged 47% due to stronger contributions from the property and manufacturing segments. However, its core PATAMI expanded by only 5% as in 3QFY21, the property segment enjoyed better margin due to lumpy cost provision write-backs from the completion of certain construction contracts.

• We believe the mid-to-long-term outlook for Mah Sing remains positive backed by:
  (i) savvy execution and quick turnaround business model;
  (ii) its effort in digital marketing and strength in offering affordable properties at strategic locations; and
  (iii) additional earnings contribution from its newly commenced glove manufacturing business.

Source: AmInvest Research - 1 Mar 2022