Results

1Q14 core PAT rose 20.9% yoy to RM84m, with YTD net profit of RM84m making up 30% and 25% of HLIB and consensus estimates respectively.

Deviations

Due to strong unbilled sales which translated to stronger than expected progress billings.

Dividends

None

Highlights

Stable margins in 1Q. Gross profit margin was fairly stable at 27% in 1Q, vs. 29% in the previous quarter.

Record unbilled sales of RM4.6bn is 2.7x FY13 revenue and ensures high earnings visibility.

Maintaining sales momentum. MSGB chalked up RM770m sales in 1Q a group record, which bodes well as it is stronger than 4Q13 (RM750m). This was achieved by its 3 key projects which collectively contributed to >70% of 1Q sales, namely Savanna Executive Suites at Southville City@KL South, Bangi (serviced residences from RM338k), and D'sara Sentral (DS) in Sungai Buloh (SoVo from RM380k) and Icon City @ PJ.

Even stronger 2Q? MSGB is confident of even stronger sales in 2Q, which saw major launches for Lakeville Residence and Southville City @ Bangi collectively worth RM400m in GDV. Moreover, sales from the residential block of DS will be captured in 2Q (RM158m GDV, 77% takeup).

Low net gearing. Back in 1Q12, net gearing was 0.41x, but MSGB has successfully brought this down to 0.12x, by securing extended payment terms for its new landbank.

Projects are well-positioned. MSGB continues to stay ahead of the curve, with its Klang Valley projects located at desirable hot spots such as KL South and the MRT line. In Johor, >90% of its projects are landed townships which should see resilient demand, whilst Southbay will benefit from the opening of Penang Second Bridge. We believe MSGB will be able to achieves its goal of 20% sales growth.

Risks

Slower than expected sales; execution risks for projects; inability to replenish landbank.

Forecasts

Given its strong earnings outlook stemming from rising unbilled sales and optimal product positioning, we upgrade our FY14-15 earnings forecast by 16-19%.

Rating

HOLD

Given macro and sector headwinds, we are keeping our HOLD call on Mah Sing at this point in time.

Valuation

Maintain TP at RM2.40 (20% discount to RNAV), as we believe it is still premature at this stage to turn aggressive on property developers.

Source: Hong Leong Investment Bank Research - 30 May 2014