Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with a higher fair value (FV) of RM0.98/share (from RM0.90/share previously) based on our SOP-based valuation and a neutral ESG rating of 3-star (Exhibits 7 & 8).

• The higher FV stems from the lower discount rate of 45% (from 50% previously) to RNAV, which results from improving sentiments in overall property market in Malaysia with the anticipation of revival of mega infrastructure projects and the potential relaxation of the conditions for Malaysia My Second Home (MM2H) program.

• The FV implies a FY24F PE of 11x, at parity to the average of mid-cap property stocks currently.

• We made no changes to our earnings forecast as Mah Sing’s 1HFY23 core net profit (CNP) of RM97mil was within expectations, making up 48% of our FY23F earnings and 50% of consensus estimate.

• YoY, the group’s 1HFY23 revenue rose 32% while CNP surged 69% YoY. This was mainly driven by stronger property topline (+40% YoY), contributed by higher property sales and revenue recognised for projects under construction.

• The operating loss of the glove manufacturing division was narrower at RM8mil in 1HFY23 (vs. an operating loss of RM9mil in 1HFY22), mainly due to improvement in plant utilisation rate.

• In 1HFY23, Mah Sing has secured new sales of RM1.2bil (+20% YoY), attaining 55% of its FY23F sales target of RM2.2bil (Exhibit 3). The major sales contributors are M Astra (29%), Meridin East (17%), M Vertica (12%) and M Senyum (12%).

• Mah Sing launched RM817mil (2.1x YoY) worth of properties in 1HFY23 with a commendable take-up rate ranging from 87%-99% (Exhibit 4).

• In August 2023, Mah Sing has launched Tower A of M Nova (GDV: RM300mil) in Kepong with an impressive take-up rate of 90%. Moving forwards, Mah Sing plans to launch projects with a total GDV of RM1.6bil, including M Minori in Johor Bahru, future phases of M Senyum in Salak Tinggi, Meridin East in Johor Bahru, M Residence 1 in Rawang and M Sinar, Southville City in Bangi (Exhibit 5).

• Meanwhile, the group’s unbilled sales rose 3% QoQ to RM2.3bil, which represent a cover ratio of 1.2x FY23F property development revenue (Exhibit 3).

• QoQ, Mah Sing’s revenue in 2QFY23 was flattish at RM644mil while CNP fell 5%. This was largely attributed to a slight drop in EBIT margin to 12% from 13% in 1QFY23.

• In 2QFY23, Mah Sing has registered a record low net gearing ratio of 0.12x (from 0.20x in 1QFY23), which provides sufficient room to gear up for future value-accretive land acquisitions of up to RM1.4bil. Mah Sing is currently under negotiation with several parties for potential land acquisitions in Klang Valley, Penang and Johor for the development of residential and industrial properties.

• The stock currently trades at a bargain FY24F PE of only 8x 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; and (ii) strong focus on affordable properties at strategic locations which have strong demand.

Source: AmInvest Research - 29 Aug 2023