Mah Sing’s 1Q18 core earnings of RM64.2m (-29% YoY) was below expectations mainly due to slower project recognition. The lower QoQ and YoY results were attributable to slower progress of work dragged by festive seasons and new projects are at initial stages. Sales achieved RM470m, on course to meet FY target while unbilled sales remained at 0.89x cover. Our FY18 and FY19 earnings are lowered having revised our project recognition and launch assumptions. Maintain HOLD with lower TP of RM1.16 (from RM1.53) based on steeper discount of 50% (from 35%) as we do not see a catalyst in the short term despite the deep discount.

Below expectations. 1Q18 revenue of RM584.8m translated into core earnings of RM64.2m, accounting for 19.2% and 17.3% of HLIB and consensus full year forecasts, respectively. The deviation was mainly due to slower project recognitions for projects at initial stages and higher finance costs.

Dividend. None (1Q17: none).

QoQ. 1Q18 revenue declined by 23.1% due to lower recognition as few projects were nearing completion while new projects are at initial stages. Core earnings were down by 27.7% as a result of lower revenue and higher finance costs.

YoY. Revenue contracted by 19.2% mainly caused by slower progress of work dragged by festive seasons and newly commenced projects such as M Centura is still at initial stages. Core earnings decreased by 29.0% in tandem with lower revenue base.

Unbilled sales stood at RM2.6bn (0.9x cover ratio over FY17 property development revenue). Sales achieved RM470m as at 1Q18 is on course to meet full year target of RM1.8bn

Outlook. FY18 earnings are expected to be flattish to marginally lower given the higher distribution to perpetual holders and higher slower recognitions of its newly commenced projects. Management expects sentiment to gradually improve further in 2H after GE14 is put into dust. Upcoming launches will still very much focus on affordable range products below RM500k. Besides, creative marketing campaign called “Desire”, which is offering services like ID consultation is being introduced to accelerate the inventory monetisation.

Forecast. We lower our project recognition and launch assumptions, resulting in lower FY18 and FY19 core earnings by 12.9% and 8.9%, respectively. Note that our core PATMI are now reported after distribution to the holders of its RM540m Perpetual Sukuk and RM650m Perpetual Securities.

Maintain HOLD with lower TP of RM1.16 (from RM1.53) based on steeper discount of 50% (was 35%) to lower RNAV of RM2.32 (was RM2.35) per share. While share price has tumbled recently, we do not see a catalyst in the short term with the declining unbilled sales despite the deep discount to our estimated RNAV. On a positive note, the renewed focus on affordable products has garnered strong responses. Consistent dividend with a minimum payout ratio of 40% with low gearing will continue to serve as support to the share price.

Source: Hong Leong Investment Bank Research - 1 Jun 2018