Mah Sing reported 1HFY20 core PATMI to RM15.9m (-73.5% YoY). New sales of RM171.6m was achieved in 2QFY20, bringing 1HFY20 sales to RM418.6m which represents 38.1% of the revised full year sales target. Note that management has revised the sales and GDV launch targets to RM1.1bn (from RM1.6bn) and RM1.5bn (from RM2.1bn) respectively. Mah Sing is exploring new expansion opportunities in healthcare related products (initial investment sum would be in the range of RM100m-RM150m with a targeted payback period of c.1.5 years). Maintain forecasts and BUY rating with a higher TP at RM0.85 based on a lower discount at 60% to RNAV of RM2.14.

Within expectations. Mah Sing reported 2QFY20 core PATMI of RM2.9m (-77.4% QoQ, -87.4% YoY), bringing 1HFY20 core PATMI to RM15.9m (-73.5% YoY) which forms 24.1% and 16.3% of our and consensus full year forecasts, respectively. Note that we derive our core PATMI forecast after (i) including payments to holders of perpetuals (RM45.5m) while it may not be the case for consensus figures. We deem the results in line as we expect a stronger 2HFY20 given that construction works have resumed. Our core PATMI was derived after excluding EIs worth -RM16.m largely stemming from -RM10m of impairments and -RM4.5m of inventory and PPE written off due to a fire incident in the plastics factory. No dividends were declared.

QoQ/YoY. Core PATMI fell -77.4%/-87.4% to RM2.9m due to lack of revenue sources coupled with unavoidable operating costs incurred during the MCO coupled with higher interest costs.

YTD. Core PATMI dropped -73.5% to RM15.9m largely attributed to the halt during the MCO period but was partially mitigated by a lower effective tax rate.

New sales of RM171.6m was achieved in 2QFY20, bringing 1HFY20 sales to RM418.6m which represents 38.1% of the revised full year sales target. Note that management has revised the sales and GDV launch targets to RM1.1bn (from RM1.6bn) and RM1.5bn (from RM2.1bn) respectively. 1HFY20 saw the launch of RM777m and we note that most of the recent launches such as M. Adora and M. Luna have achieved commendable bookings and sales given its attractive price points. Unbilled sales stood at RM1.6bn, representing a cover ratio of 1.1x over FY19’s property development revenue.

Possible venture into healthcare related products. Mah Sing’s plastics manufacturing division is exploring new expansion opportunities in healthcare related products. We gather that the initial investment sum would be in the range of RM100m RM150m with a targeted payback period of c.1.5 years. Ideally, Mah Sing would be able to tap onto its expertise of its plastics business in order to synergise with this potential venture. For the uninitiated, Mah Sing’s Plastics division has over four decades of experience as a plastics manufacturer with customers across SEA. The sales breakdown of its operations in Malaysia comprises of 60% local and 40% export (top 5 export markets include Singapore, Thailand, Indonesia, Vietnam and Philippines). Meanwhile, its Indonesian operations (65%-owned subsidiary) caters to clients such as Mercedes Benz, Nissan, Suzuki, Mitsubishi, Daihatsu, and Panasonic.

Outlook. We expect FY20 to be a bottomed year and remain upbeat on the longer term prospects as FY21 will see better earnings contributions from key projects such as M Vertica and M Centura which are currently in its early stages of construction. The group currently has c.RM1.6bn worth of property bookings on hand and is working on converting them into sales.

Forecast. Unchanged.

Maintain BUY, TP: RM0.85 (from RM0.64). Our TP is increased as we lower our valuation discount to 60% (from 70%) to reflect the commendable take-up of recent launches, cover ratio of 1.1x to provide earnings visibility coupled with the likely positive sentiment associated with their foray into healthcare products. We see value in the stock as it is priced at a P/B valuation of 0.43x (-2SD of its 5-year mean), and is lower than its GFC trough of 0.68x. The focus on affordable products should garner strong responses (as seen in its recent launches) and dividend with a minimum payout ratio of 40% (FY20 yield: 3.0%, FY21 yield 4.1%) would hopefully serve as a support to share price

Source: Hong Leong Investment Bank Research - 1 Sept 2020