Investment Highlights

• We make no changes to our earnings forecasts and our fair value of RM1.68, based on a 30% discount to its RNAV. Maintain BUY. Key risks to our call include a sharp downturn in residential property market and higher-thanexpected property loan rejection rate.

• Mah Sing’s 1QFY17 core net profit of RM90.4mil was in line with expectations, making up 25% of our full-year forecast and 26% of consensus. No dividend was declared, as expected.

• Mah Sing’s net earnings dropped 4.9% YoY although revenue improved 2.0% YoY to RM723.5mil, mainly due to lower earnings from its property division. Operating profit from the property division declined 8.4% YoY to RM113.7mil although revenue remained flat at RM633.0mil due to higher selling, marketing and administrative expenses. Its plastics’ division registered strong growth, with operating profit up 76.1% YoY to RM4.3mil with revenue improving 27.8% YoY to RM58.0mil.

• Mah Sing launched projects with RM682mil GDV in FY17, made up mainly by Lakeville Residence, Taman Wahyu (RM198mil), Southbay City, Penang (RM128mil) and Ferringhi Residence, Penang (RM107mil). It is targeting to launch projects worth RM1.9bil in GDV in FY17, spread across Klang Valley, Penang and Johor, with the majority of them in 2H17.

• Mah Sing recorded new property sales of RM410.3mil in 1QFY17, contributed mainly by its Lakeville Residence (RM180mil), Southville City @ KL South (RM34mil) and Ferringhi Residence (RM34mil). It has set a target of new property sales of RM1.8bil for FY17, which we believe is achievable given that most of the new launches are set to take place in 2HFY17, and due to the group’s higher focus on the affordable segment, with a target of 73% of residential property sales priced below RM700K.

• Unbilled sales stood at RM3.48bil as at end-1Q17, which should provide earnings visibility to the group for the next two years.

• Armed with a strong balance sheet, a net gearing ratio of 0.02x and cash balance of RM837.6mil as at end-1Q17, we expect Mah Sing to continue its landbanking activity for the remainder of the year. To date, it has announced two new land acquisitions, namely the Titiwangsa land (3.5 acres) and Sentul land (8.65 acres). The proposed developments on these lands are based on a quick turnaround business model that lowers the land holding risk, resulting in better cash flow for the group.

Source: AmInvest Research - 1 Jun 2017