Mah Sing reported 4QFY19 core PATMI of RM41.9m (+33.5% QoQ, -3.7% YoY), which brings the FY19 sum to RM133.3m (-29.9% YoY). Management will also be redeeming its Perpetual Sukuk of RM540m in early-2020, thus reducing its yearly payments by c.RM36m. We lower our forecasts for FY20/21 by -10.7%/- 7.7% to take into account potential margin compression. Maintain BUY, TP: RM0.86 (from RM0.88). Our TP is lowered slightly based on an unchanged discount of 60% to RNAV of RM2.15

Above expectations. Mah Sing reported 4QFY19 core PATMI of RM41.9m (+33.5% QoQ, -3.7% YoY), which brings the FY19 sum to RM133.3m (-29.9% YoY), forming 110.4% and 63.3% of our and consensus full year forecasts, respectively. Note that we derive our core PATMI forecast after (i) including payments to holders of perpetuals (RM91.3m) while it may not be the case for consensus figures and (ii) excluding +RM24.2m of EIs from the allowance for impairment on inventories (i-Parc industrial units in Johor). The positive results surprise was largely due to the completion of certain projects (e.g. Lakeview) which led to recognition of cost savings.

Dividend. Proposed first and final dividend of 3.35 sen (FY18: 4.5 sen) per share.

QoQ. Core PATMI improved +33.5% to RM41.9m on the back of higher progressive billings coupled with recognition of cost savings from the completion of certain projects coupled with a lower effective tax rate.

YoY. Core PATMI remained relatively flat (-3.7%) despite the fall in revenue (-14%) largely due to cost savings from the completion of certain projects.

YTD. Core PATMI dropped -29.9% to RM133.3m in tandem with revenue (-18.4% to RM1,789.7m) coupled with higher payment for perps.

New sales of RM400m was achieved in 4Q19, bringing FY19 total sales to RM1.5bn in-line with targeted sales. Unbilled sales stood at RM1.7bn, representing a 1.2x cover ratio over FY19 property development revenue.

Outlook. For FY20, Mah Sing has set a sales target of RM1.6bn (+6.6% YoY) and a planned GDV launch of RM2.1bn. We expect FY19 to be a bottomed year as earnings contribution from key projects i.e. M.Vertica and M.Centura are still in its early stages of construction; better contributions should be recognised moving into end-FY20 and FY21. In addition, management will also be redeeming its Perpetual Sukuk of RM540m in early-2020, thus reducing its yearly payments by c.RM36m. Any new financing will likely be at a more favourable rate with the low interest rate environment.

Forecast. Despite recording a positive results surprise, we lower our forecasts for FY20/21 by -10.7%/-7.7% to take into account potential margin compression.

Maintain BUY, TP: RM0.86 (from RM0.88). Our TP is lowered slightly based on an unchanged discount of 60% to RNAV of RM2.15 as we impute the earnings revision. We impute a higher discount to reflect the uncertainty in duration of the Covid-19’s potential impact towards sales. We will revisit our valuation upon further updates on the status of the outbreak. We now see deep value in the stock after it retraced -33% from the peak in Feb-2019. With P/B valuation at 0.45x (almost -3SD below 12-year mean), this is now at a historical low; even below its GFC trough of 0.68x. The focus on affordable products has garnered strong response and consistent dividend with a minimum payout ratio of 40% (yield of 5%, based on FY20 forecasted earnings) should hopefully serve as a support to share price.

Source: Hong Leong Investment Bank Research - 9 Mar 2020