Mah Sing’s FY20 core PATMI of RM65.6m (-50.8% YoY) were above our expectation. New sales of RM253m were achieved in 4QFY20, bringing FY20 sales to RM1.1bn (which is within their sales target). For FY21, Mah Sing has set a sales target of RM1.6bn (+45% YoY) and a planned GDV launch of RM2.4bn. We increase our earnings by 7% for FY21-22 to account for higher progressive billings and maintain BUY with a lower TP of RM1.15 (from RM1.41) based on a SOP derived valuation, as we lowered our PE yardstick for the gloves division to reflect possible sentiment dent from the positive vaccines development.

Above expectations. Mah Sing reported 4QFY20 core PATMI of RM26.0m (+9.6% QoQ, -37.9% YoY), bringing FY20’s sum to RM65.6m (-50.8% YoY). This forms 110% and 94% of our and consensus full year forecasts, respectively. We derive our core PATMI forecast after including payments to holders of perpetuals while it may not be the case for consensus figures. FY20 core PATMI was derived after excluding EIs worth RM38.4m largely from impairments and deducting payments to holders of perpetuals worth RM73.2m. The positive results surprise was largely due to higher progressive billings recognition especially from M Vertica and M Centura projects.

Dividend. Proposed first and final dividend of 1.66 sen per share for FY20 (FY19: 3.35 sen).

QoQ. Top line chalked in a growth of 21.8% mainly due to increase in contribution from on-going projects namely M Vertica and M Centura. As other expenses was higher by 20.3% as well recognition of payment to perpetual holders in the current quarter (as compare to absence in the payment in 3Q20), core earnings was only improved by 9.6%.

YoY. Although revenue was higher by 6.8% from the higher progressive billings recognition, core net profit was lower by 37.9% mainly due to lower margin products and higher tax paid (+42.7%).

YTD. Core earnings fell by 50.8% due to the impact of MCO/CMCO/RMCO, in which it affected the level of activities on sites, as well as lower operating margins as most products are in the early stages of construction.

New sales of RM253m were achieved in 4QFY20, bringing FY20 sales to RM1.1bn (which is within their sales target) as well as a total of RM1.5bn of launches was achieved in FY20. Unbilled sales stood at RM1.6bn, representing a cover ratio of 1.4x.

Glove venture still on track. With regards to its glove venture, management notes that is still on track to commence operations in Apr 2021. The glove plant in Kapar is currently at advanced stage of completion and is expected to contribute from 2Q 2021 onwards.

Outlook. For FY21, Mah Sing has set a sales target of RM1.6bn (+45% YoY) and planned GDV launch of RM2.4bn. For the first 2 months of the year, Mah Sing has achieved encouraging sales of RM250m mostly from M Adora and M Luna. 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.RM1bn worth of property bookings on hand and is working on converting them into sales.

Forecast. We increase our earnings by 7% for FY21-22 to account for higher progressive billings recognition.

Transfer of coverage; maintain BUY. With the transfer of coverage to our new property analyst, we maintain BUY with a lower TP of RM1.15 (from RM1.41) based on a SOP derived valuation, as we lowered our PE yardstick to 10x (from 20x) for the gloves division to reflect possible sentiment dent from the positive vaccines development. Our BUY call is premised upon its commendable take-up of recent launches, cover ratio of 1.4x to provide earnings visibility, dividend payout ratio of 40% coupled with its venture into gloves, which will provide a meaningful boost to earnings in FY21/22.
 

Source: Hong Leong Investment Bank Research - 26 Feb 2021