Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with a lower SOP-based fair value of RM0.85/share from RM0.93/share, and a neutral 3-star ESG rating (Exhibits 6 & 7). We continue to like Mah Sing for its strong focus on affordable housing projects at strategic locations which have strong demand.

• Mah Sing’s 1QFY22 core net profit (CNP) of RM40mil came in below our expectation, making up only 20% of our FY22F earnings, and accounted for 30% of consensus estimate. We lower our FY22F/FY23F CNP forecast by 21%/22% to reflect the margin compression of its property segment as a result of higher building material cost and lower our estimate for the average selling price of gloves to US$24 per 1,000 pcs from US$30 per 1,000 pcs.

• In 1QFY22, the group’s property development segment’s revenue rose 3% YoY. This was driven by higher sales and revenue recognised for property projects under construction. However, its operating profit surged 22% YoY mainly due to write-backs on provision for higher cost from the completion of certain construction contracts.

• Year to date, Mah Sing has secured new sales of RM450mil (+13% YoY), attaining 23% of its FY22F sales target of RM2bil (Exhibits 3). New sales were contributed largely by M Luna (15%), M Centura/M Arisa (13%) and Meridin East (12%) (Exhibit 4).

• Moving forward, Mah Sing plans to launch M Astra in Setapak with a gross development value (GDV) of RM618mil and M Nova in Kepong with a GDV of RM557mil.

• Meanwhile, the group’s unbilled sales expanded 17% YoY to RM2bil, which represented a cover ratio of 1.2x of FY22F property development revenue (Exhibits 3, 5).

• The manufacturing division reversed to an operating loss of RM8mil in 1QFY22 from an operating profit of RM5mil in 1QFY21 mainly due to lower absorption of glove plant's overhead expenses, primarily with low production output during its initial stage of operation.

• We see gradual improvement in the glove segment following the completion and commissioning of all 12 production lines in December 2021. We estimate the operating losses from glove segment to be lower at RM10– 11mil in 1QFY22 from RM15–16mil in 4QFY21.

• QoQ, 1QFY22 revenue declined 19% due to weaker contribution from the property segment. However, its core PATAMI dropped by only 4% QoQ as the property segment enjoyed better margins in 1QFY22 due to write-backs on provisions for higher cost.

• The stock currently trades at a bargain FY23F PE of only 9x vs. a 4-year average of 11x and offers an attractive dividend yield of 5%. We believe the mid-to-long-term outlook for Mah Sing remains positive backed by its:
  (i) savvy execution and quick turnaround business model;
  (ii) efforts in digital marketing and strength in offering affordable properties at strategic locations;
  (iii) improving performance of its recently started glove manufacturing business after the commencement of new production lines; and
  (iv) healthy gearing of 0.33x and improving financial cost with 65% of borrowings in fixed rate which will not be adversely impacted by higher interest rates.

Source: AmInvest Research - 1 Jun 2022