Mah Sing’s 1HFY19 core PATMI of RM59.9m was below ours and consensus. New sales of RM460.9m was achieved in 2Q19, bringing 1H19 total sales to RM761.4m while unbilled sales stands at RM1.6bn (0.9x cover ratio). We expect 2H to continue registering sluggish earnings as most revenue recognition will stem from projects in the early stages of development, with meaningful contributions picking up in FY20. We lower our forecasts for FY19/20/21 by - 30.4%/-10.6%/-12.7% to take into account slower progressive billings and lower margin product mix. Maintain HOLD with a lower TP of RM0.90 (from RM1.00) based on a higher discount at 60% (from 55%) discount to RNAV of RM2.24.

Below expectations. Mah Sing reported 2QFY19 core PATMI of RM23.2m (-36.6% QoQ, -57.6% YoY), which brings the 1HFY19 sum to RM59.9m (-40.5% YoY), forming 32.1% and 30% of our and consensus full year forecasts, respectively. We deem this below expectations largely due to lower than expected progressive billings coupled with a lower margin product mix. No dividends were declared.

QoQ. 2Q19 revenue rose 6.9% to RM481.2m on the back of higher progressive billings. However, core PAMI fell -8.5% to RM23.2m due to a lower margin product mix and higher payments to holders of perpetual bonds.

YoY/YTD. Revenue fell -18.3% /-20.7% to RM481.2m/ RM931.6m as most of the revenue recognised stemmed from projects in its early stages of development. Consequently, core PATMI dropped -57.6%/ -40.5% in tandem with revenue coupled with a lower margin product mix.

New sales of RM460.9m was achieved in 2Q19, bringing 1H19 total sales to RM761.4m which represents 51% of FY19 sales target of RM1.5bn. Unbilled sales stands at RM1.6bn, representing a 0.9x cover ratio over FY18 property development revenue.

Outlook. Mah Sing will continue to replenish its landbank within Klang Valley with a focus on development sites with a fast turnaround catered to the affordable segment. Recall that YTD, Mah Sing has acquired 3 lands with approved development orders. Management is maintaining the FY19 sales target as there is over RM2.2bn worth of GDV launches in the pipeline for the year. Nonetheless, we expect 2H to continue registering sluggish earnings as most revenue recognition will stem from projects in the early stages of development, with meaningful contributions picking up in FY20.

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.

Forecast. We lower our forecasts for FY19/20/21 by -30.4%/-10.6%/-12.7% to take into account slower progressive billings and lower margin product mix.

Maintain HOLD with a lower TP of RM0.90 (from RM1.00) based on a higher discount at 60% (from 55%) discount to RNAV of RM2.24. 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 - 3 Sept 2019