Mah Sing’s 1H18 core PATMI of RM101m (-38% YoY) was broadly in line. Note that no fair comparison can be made to the consensus PATMI which may be distorted. The lower YoY results were attributable to slower progress of work for projects which are still at initial stages, the distribution to perpetual securities and higher finance costs. 1H18 new sales of RM942m are on course to meet full year target of RM1.8bn while unbilled sales remained at 0.9x cover. Maintain forecast and HOLD rating with unchanged RNAV-based TP (50% discount) of RM1.16.

Broadly in line. 1H18 revenue of RM1.17bn translated into core PATMI of RM100.7m, representing 41.5% of our forecast. Note that no fair comparison can be made to the consensus PATMI as it is inflated due to the non-exclusion of distribution paid to holders of perpetual sukuk/securities. We deem the results as broadly in line with stronger 2H18 expected coming from higher progressive billings of newer projects and inventory monetisation initiatives.

Dividend. None (2Q17: None).

QoQ. 2Q18 core PATMI rose 19.3% due to recognition of cost savings following the completion of certain projects while revenue was flat (+0.8%) with no significant changes in the contribution from projects.

YoY. Revenue declined by 19.0% due to lower recognition as new sales secured and ongoing projects are mostly from newer projects which are at initial stages of construction. Core PATMI was down by 39.4% as a result of lower revenue, distribution to perpetual securities (RM22.4m) and higher finance costs.

YTD. Revenue was down by 19.1% mainly caused by slower progress of work dragged by festive seasons and newly commenced projects such as M Centura and M Vertica are still at initial stages of construction. Core PATMI decreased by 38.1% in tandem with lower revenue base, higher finance costs and distribution to perpetual securities.

Unbilled sales improved to RM2.7bn (0.9x cover ratio over FY17 property development revenue) from RM2.6bn in 1Q18. RM472m of new sales came in strongly in 2Q18 despite the overall wait-and-see approach taken due to GE factors. 1H18 total new sales of RM942m are on course to meet full year target of RM1.8bn.

Outlook. We are hopeful for stronger results in the coming quarters drawing from higher recognitions of its newly commenced projects such as M Vertica and M Centura as well as potential savings from the transition from GST to SST. Besides, management expects sentiment to gradually improve further in 2H18 post GE14 once more clarity on housing policy is known. However, overall FY18 PATMI is expected to come in lower YoY given the higher distribution to perpetual holders with lower contribution from major projects which are still at initial stages of construction.

Forecast. Unchanged as the results were broadly in line.

Maintain HOLD with unchanged TP of RM1.16 based on 50% discount to RNAV of RM2.32. We do not see any strong catalyst in the short term with the relatively low unbilled sales and downward earnings trend despite the deep discount to our estimated RNAV. On the other hand, the renewed focus on affordable products has garnered strong responses with relatively strong new sales generated. 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 - 3 Sept 2018