Mah Sing reported 9MFY20 core PATMI of RM39.7m (-56.6% YoY). New sales of RM428m were achieved in 3QFY20, bringing 9MFY20 sales to RM847m which represents 77% of the revised full year sales target of RM1.1bn. With regards to the glove venture, management notes that is still on track to commence operations in Apr 2021. Note that Mah Sing’s application for the US FDA registration has been approved and is currently pending issuance of certificate . Maintain forecasts and BUY rating with an unchanged TP of RM1.41.

Within expectations. Mah Sing reported 3QFY20 core PATMI of RM23.8m (+7x QoQ, -24.3% YoY), bringing 9MFY20 core PATMI to RM39.7m (-56.6% YoY) which forms 66.9% and 44.6% of our and consensus full year forecasts, respectively. Note that we derive our core PATMI forecast after including payments to holders of perpetuals while it may not be the case for consensus figures. Our core PATMI was derived after excluding EIs worth -RM13m largely from impairments and deducting payments to holders of perpetuals worth RM45.5m. No dividends were declared.

QoQ. Core PATMI increased 7x to RM23.8m largely due to the absence of payment to perpetual holders in the current quarter. Nonetheless we note that improved Property Development progressive billings recognition was offset by lower margins.

YoY/YTD. Core PATMI fell -24.3%/-56.6% to RM23.8m/RM39.7m due to lower operating margins in the current quarter as most products are in the early stages of construction. Furthermore, YTD figures were impacted by the lack of revenue sources coupled with unavoidable operating costs incurred during the MCO

New sales of RM428m were achieved in 3QFY20, bringing 9MFY20 sales to RM847m which represents 77% of the revised full year sales target. Note that management had previously revised the sales and GDV launch targets to RM1.1bn (from RM1.6bn) and RM1.5bn (from RM2.1bn) respectively. 9MFY20 saw the launch of RM1,180m while 4QFY20 is expected to see the launch of RM250m worth of products. Unbilled sales stood at RM1.7bn, representing a cover ratio of 1.3x over FY19’s property development revenue.

Glove venture still on track. With regards to the glove venture, management notes that is still on track to commence operations in Apr 2021. Mah Sing it has been receiving interests towards its products far beyond its planned Phase 1 and 2 capacities of 7.35bn pieces p.a.. Note that Mah Sing’s application for the US FDA registration has been approved and is currently pending issuance of.

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 coupled with the commencement of its glove venture. The group currently has c.RM1.2bn (as of end-Nov) worth of property bookings on hand and is working on converting them into sales.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM1.41 based on a SOP derived valuation. Our BUY call is premised upon its commendable take-up of recent launches, cover ratio of 1.3x to provide earnings visibility, minimum dividend payout ratio of 40% coupled with its venture into gloves, which will provide a meaningful boost to earnings in FY21/22 after taking into account its contributions.

Source: Hong Leong Investment Bank Research - 1 Dec 2020