• Mah Sing Plastics Industries Sdn. Bhd. (MSPI), a wholly-owned subsidiary of Mah Sing, had on 23 January 2024, entered into a master cooperation agreement (Agreement) with PT Gaya Sukses Mandiri Kaseindo (PT Gaya) to jointly carry out the business relating to manufacturing and trading of plastic pallets, containers and related material handling and storage products in Indonesia.

• We are optimistic about the new venture in Indonesia as it will open doors to enter additional ASEAN markets for plastic pallets and aligns with the company's strategy to strengthen its global market footprint.

• Maintain our HOLD recommendation on Mahsing with a TP of RM0.87, based on 65% discount to RNAV. In light of strong price rally recently, we prefer investors to accumulate the stock on dip.

Leveraging the Local Partner’s Distribution Network

PT Gaya has been an MSPI distributor partner for plastic pallets in Indonesia for over a decade. The current partnership forms a strong basis for a Joint Venture, enabling a smooth entry and leveraging the increasing demand for plastic pallets in Indonesia, while also resolving capacity limitations in Malaysian facilities to meet global demand. By utilizing the local partner's market knowledge, distribution network, and established connections, MSPI can expedite market penetration and significantly contribute to the success of its operations.

The Joint Venture Arrangement

The Joint Venture will be established through a Joint Venture company (JV Company), with MSPI holding a 70% shareholding and PT Gaya holding 30%. This Agreement demonstrates the commitment of MSPI and PT Gaya to form the JV Company, with an authorized capital of Rp140bn (RM42.3mn) and an issued and paid-up share capital of Rp100bn (RM30.2mn). MSPI will allocate internal funds for the JV commitment. Currently, the manufacturing segment contributes approximately 17% to the Mah Sing group's total revenue. According to company guidance, MSPI plans to install 3 new injection machines and has the potential to add up to 15 more for plastic pallet production at PT Mahsing's Indonesian factory. This expansion would contribute an additional 10% to MSPI's total revenue. Despite the positive progress in plastic pallets, the impact on the Mahsing Group would be minimal at this juncture.

Maintain HOLD with a TP of RM0.87

We maintain a HOLD call on Mahsing with a TP of RM0.87 based on 65% discount to RNAV. Despite the recent price rally prompting a HOLD call, our stance on the stock remains positive. This is considering its ongoing land acquisitions, which contribute to quick turnaround and provide visibility for sustainable earnings in the long term.

Source: BIMB Securities Research - 24 Jan 2024