RESULTS

• Results below expectations. Mah Sing Group (Mah Sing) reported 1Q18 revenue of RM584.8m (-23.1% qoq, -19.2% yoy) and net profit of RM64.6m (-27.3% qoq, -28.6% yoy). The core net profit accounts for only 17.6% and 19.3% of our and consensus estimates.

• Property EBIT margin still decent. In 1Q18, property EBIT margin was at 15.4% (-1.7ppt qoq, -2.6ppt yoy). We expect margins will remain decent and we have already factored in a 15% property EBIT margin for the full year.

STOCK IMPACT

• Property sales worth RM470m for 1Q18. During the quarter, Mah Sing managed to secure RM470m of new property sales, which accounts for 26% of its full-year sales target of RM1.8b. Mah Sing also remained committed to providing affordable housing priced below RM500,000, which represents 74% of its total sales target in 2018.

• Unbilled sales at RM2.6b, representing 1.1x 2017 property revenue. This would help sustain earnings for slightly over one year. Completed and unsold inventory stood at about RM486m, while unsold units under development stood at RM1.6b.

• Healthy balance sheet, allowing for expansion. As of 1Q18, Mah Sing’s balance sheet remained healthy with net cash of RM143m. Recall that in 2017, the group bought three land pieces, worth a combined GDV of RM3.7b. We do not discount more land acquisitions, joint ventures and investment activities in 2018.

STOCK IMPACT

• Under review. We make no changes to our earnings forecasts, pending an earnings review.

RECOMMENDATION

• Maintain HOLD but cut target price to RM1.23 (from RM1.66) as we widen our discount to RNAV from 40% initially to 55% (on par with SP Setia and Eco World) in view of the sluggish outlook of the property market. Our target price implies 8.0x 2019F PE. While Mah Sing’s fundamentals remain intact, the sector’s limited catalysts would cap near- to medium-term price upside. Entry price: RM0.98.

Source: UOB Kay Hian Research - 1 Jun 2018