Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with an unchanged SOP-based fair value of RM0.86/share, which reflects a neutral 3-star ESG rating (Exhibits 8 & 9). We continue to like Mah Sing for its strong focus on affordable housing projects at strategic locations which have strong demand.

• Mah Sing’s 9MFY22 core net profit (CNP) of RM124mil came in within our expectations but slightly above consensus estimates, making up 77% of our FY22F earnings and 81% of streets’. Hence, we make no changes to our forecasts.

• YoY, the group’s 9MFY22 revenue grew 35%, mainly driven by stronger topline (+41% YoY) of its property segment. The improvement was contributed by higher property sales and revenue recognised for its projects under construction.

• However, the group’s 9MFY22 CNP grew by only 9% YoY, primarily due to the provision of one-off prosperity tax for M Vertica project, coupled with weaker performance from its manufacturing division.

• The manufacturing division recorded an operating loss of RM14mil in 9MFY22 (vs. an operating loss of RM363K) in 9MFY21 mainly due to low production output at its glove plants during the initial stage of operation which was insufficient to cover operating costs.

• Year to date, Mah Sing has secured new sales of RM1.7bil (+32% YoY), attaining 85% of its FY22F sales target of RM2bil. This was the highest quarterly sales recorded since FY17 (Exhibits 3, 4).

• We believe Mah Sing is on track to achieve its FY22F sales target, which will be mainly supported by new launches worth RM400mil in 4QFY22 (M Astra in Setapak and new phase of link house in Meridin East), coupled with strong bookings of RM726mil.

• Meanwhile, the group’s unbilled sales expanded 12% YoY and 6% QoQ to RM2.3bil, which represented a cover ratio of 1.4x of FY23F property development revenue (Exhibits 3 & 6).

• Mah Sing’s revenue in 3QFY22 rose 24% QoQ, contributed largely by its property segment, which recorded higher sales from partially and fully completed properties, coupled with stronger construction progress. This resulted in a 12% QoQ decline in its inventory level (Exhibit 7). However, its CNP improved by only 11% QoQ due to provision of prosperity tax.

• Its net gearing ratio improved to 0.27x in 3QFY22 from 0.34x in 2QFY22. This provides sufficient room to gear up for future value-accretive land acquisitions of up to RM800mil. We anticipate Mah Sing will embark on land-banking activities in Greater Kuala Lumpur over the coming quarters.

• The stock currently trades at a bargain FY23F PE of only 7x 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 rates, which will not be adversely impacted by higher interest rates.

Source: AmInvest Research - 1 Dec 2022