Mah Sing’s 1QFY19 core PATMI of RM36.7m was below ours and consensus. New sales of RM300.5m in 1QFY19 represented 20% of FY19 sales target of RM1.5bn. Unbilled sales stood at RM1.6bn representing a 0.9x cover ratio over FY18 property development revenue. Management targeted a flat FY19 sales target of RM1.5bn while GDV launches is targeted at RM2.2bn. We lower our earnings forecasts for FY19/20 by -4.3%/-3.1% to reflect the changes in model assumptions. Maintain HOLD with an unchanged TP of RM1.00 based on an unchanged 55% discount to RNAV of RM2.21.

Below expectations. 1QFY19 revenue of RM450.3m translated into core PATMI of RM36.7m, representing 18.5% and 15.9% of HLIB and consensus full year forecasts, respectively. The results were below expectations largely due to lower than expected recognition of progressive billings. No dividends were declared.

QoQ/YoY. 1QFY18 fell -12.5%/-23% to RM450.3m (from RM514.6m/RM584.8m) largely due to a lower recognition of progressive billings i.e. higher proportion of new sales are from new projects in this quarter. Consequently, core PATMI decreased - 15.7%/-20% to RM36.7m (from RM43.5m/RM45.9m) in tandem with revenue.

New sales of RM300.5m for 1QFY19 represented 20% of FY19 sales target of RM1.5bn. Unbilled sales stands at RM1.6bn, representing a 0.9x cover ratio over FY18 property development revenue. Management is maintaining the FY19 sales target as there is over RM1.9bn worth of GDV launches in the pipeline for the year.

National Homeownership Campaign. We understand that Mah Sing will be participating in the upcoming National Homeownership Campaign with 10 projects (including new ones) to help boost sales for both completed and developing projects. However, PATMI may continue to come under pressure from the discounts given to boost sales.

FY19 targets. Management has set a flat sales target of RM1.5bn, with 50% of products priced RM500k-RM700k and 31% of products priced RM701k-RM1m. Over 70% of sales target are located in the Greater KL region, followed by 19% in Johor and 11% in Penang. With regards to GDV launches, a target of RM2.2bn has been set which includes projects such as M Vertica, Sensory, Meridin East and Southbay City (1QFY19 launches: RM388m).

Forecast. We lower our forecasts for FY19/FY20 by -4.3%/-3.1% to take into account slower progressive billings and housekeeping adjustments. We introduce FY21 numbers with core PATMI at RM252.4m.

Maintain HOLD with unchanged TP of RM1.00 based on an unchanged 55% discount to RNAV of RM2.21. We do not see any strong catalyst in the short term with flat new sales coupled with subdued 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 - 31 May 2019