Mah Sing’s 9M18 core PATMI of RM147m (-36% YoY) was below expectations due to slower recognition of newly launched projects and slower new sales. Unbilled sales declined to RM2.5bn (0.9x cover) while 3Q new sales slowed to RM275 (-37% YoY) due to uncertainty prior to Budget 2019, which may fall short for the full year target. We lower than our earnings forecasts for FY18/19/20 by - 18%/-15%/-10% to reflect the changes in assumptions in our model and roll over our valuation to FY19. Maintain HOLD with lower TP of RM1.12 (from RM1.16) based on 50% discount to RNAV of RM2.25.

Below expectations. 9M18 revenue of RM1.68bn translated into core PATMI of RM146.6m, representing 60.5% and 52.6% of HLIB and consensus full year forecasts, respectively. The lower than expected results was mainly due to the slower recognition of newly launched projects and slower new sales. Note that consensus PATMI may be inflated due to the non-exclusion of distribution paid to holders of perpetual sukuk/securities.

Dividend. None (3Q17: None).

QoQ. 3Q18 core PATMI declined 16.1% to RM45.9m in tandem with lower revenue (- 14.4%) due to minimal contribution from newly launched projects and slower new sales, coupled with higher SG&A expenses.

YoY. Core PATMI dropped by 30.5% on the back of lower revenue and higher finance costs. Revenue slide by 28.4% to RM504.3m due to slower recognition as new sales secured are mostly newer projects which are still at initial stages of construction.

YTD. Revenue was down by 22.1% mainly due to minimal recognition from newly commenced projects which is still at initial stage of construction. Core PATMI decreased by 35.9% in tandem with lower revenue base, higher finance costs and higher distribution to perpetual securities.

Unbilled sales declined to RM2.5bn (0.9x cover ratio over FY17 property development revenue) from RM2.7bn in 2Q18. 3Q18 new sales came in at only RM275m (-37% YoY) due to the uncertainty prior to Budget 2019, bringing YTD new sales to RM1.2m, which may fall short for the full year target of RM1.8bn.

Outlook. We understand that Mah Sing has launched the Easy Home Ownership Campaign so that buyers can enjoy the Budget 2019 stamp duty waiver immediately to boost its new sales. However, PATMI may continue to come under pressure if new sales continue to be weak on top of higher distribution to perpetual holders following the second issuance of RM145m of unrated senior perpetual securities for new land banking opportunities.

Forecast. We lower our earnings forecasts for FY18/19/20 by -18%/-15%/-10%, to reflect the changes in assumptions for take-up, margin and project recognitions.

Maintain HOLD with lower TP of RM1.12 (from RM1.16) based on 50% discount to RNAV of RM2.25, reflecting the change in our model assumptions and roll over our valuation to FY19. We do not see any strong catalyst in the short term with the relatively low unbilled sales and slower new sales coupled with weak earnings trend despite the deep discount to our estimated RNAV. On the other hand, the focus on affordable products has garnered strong response and consistent dividend with a minimum payout ratio of 40% should continue to serve as support to the share price.

Source: Hong Leong Investment Bank Research - 19 Nov 2018