Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with an unchanged SOP-based fair value of RM0.87/share, which reflects a neutral 3-star ESG rating (Exhibits 9 & 10). We continue to like Mah Sing for its strong focus on affordable housing projects at strategic locations which have strong demand.

• Mah Sing’s 1HFY22 core net profit (CNP) of RM80mil came in largely within expectations, making up 49% of our FY22F earnings, and accounting for 53% of consensus estimate. Hence we make no changes to our forecasts.

• YoY, the group’s 1HFY22 revenue grew 15%, mainly driven by a stronger top line (+14% YoY) of its property segment. The improvement was due to higher property sales and revenue recognised for its projects under construction. However, the group’s 1HFY22 CNP was flattish YoY at RM80mil, primarily due to the weaker performance from its manufacturing division.

• The manufacturing division recorded an operating loss of RM9mil in 1HFY22 vs. an operating profit of RM6mil in 1HFY21 mainly due to low productivity at its glove plants during its initial stage of operation which was insufficient to cover operating costs.

• Nevertheless, we see the drag on the group’s earnings from the glove segment easing following the completion and commissioning of all 12 production lines in December 2021. We estimate a decline in operating losses for the segment of RM7–8mil in 2QFY22 from RM10–11mil in 1QFY22.

• Year to date, Mah Sing has secured new sales of RM1bil (+25% YoY), attaining 50% of its FY22F sales target of RM2bil. This was the highest quarterly and half-year sales recorded since FY17 (Exhibit 3). New sales were contributed largely by Meridin East (16%), Southville City (10%) and M Senyum (10%) (Exhibit 4).

• Meanwhile, the group’s unbilled sales expanded 21% YoY and 6% QoQ to RM2.2bil, which represented a cover ratio of 1.3x of FY22F property development revenue (Exhibits 3 & 6).

• 
  Mah Sing’s 1HFY22 launches of RM397mil (vs. RM800mil in 1HFY21) accounted for 26% of its FY22F targeted launch of RM1.5bil (Exhibit 5). In 2HFY22F, Mah Sing plans to launch projects with a total gross development value (GDV) of RM1.1bil. The key projects are M Astra, M Panora, M Senyum and Meridin East (Exhibit 7).

• Mah Sing’s revenue in 2QFY22 rose 25% QoQ contributed largely by its property segment, which recorded higher sales from partially and fully completed properties. Its inventory level dropped 7% QoQ (Exhibit 8) as a result of higher sales of completed properties from Southbay City and Ferringhi Residence in Penang as well as Sierra Perdana, Meridin @ Medini, and Mah Sing i-Parc in Johor. However, its CNP slid by 2% QoQ due to lower gross profit margin of 21% in 2QFY22 vs. 28% in 1QFY22. This was attributed to the property segment’s better margins in 1QFY22 that benefited from lumpy cost provision write-backs from the completion of certain construction contracts. On a positive note, the operating losses of its manufacturing division in 2QFY22 decreased significantly by 84% QoQ, thanks to improving production volume from its glove plant.

• The stock currently trades at a bargain FY23F PE of only 8x vs. a 4-year average of 11x and offers an attractive dividend yield of 6%. 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; and (iii) healthy FY22F gearing of 0.31x and improving financial cost with 65% of borrowings in fixed rate which will not be adversely impacted by higher interest rates.

Source: AmInvest Research - 30 Aug 2022