Mah Sing reported 1QFY21 core PATMI of RM39.3m (+50.9% QoQ, +241.3% YoY) that were inline with our and consensus expectation. New sales of RM400m were achieved in 1QFY21 which contributed to its better performance. Mah Sing’s glove manufacturing factory in Kapar has received its business license and commenced its operation recently with bulk of the first shipment of gloves to be delivered in June 2021. For the month of April and May, Mah Sing has achieved encouraging sales of RM250m (YTD : RM650m), on track to meet full year sales target of RM1.6 bn. Maintain our forecast and BUY recommendation with an unchanged TP of RM1.15 based on a SOP derived valuation.

Within expectations. Mah Sing reported 1QFY21 core PATMI of RM39.3m (+50.9% QoQ, +241.3% YoY), forming 18% of our and consensus full year forecasts. We deemed the results as inline as we are expecting better contribution from 2Q onwards from glove manufacturing business. No dividend was declared.

QoQ. Top line decreased by 12.6% mainly attributable to slower progress of work during festive season. Nonetheless, core PATAMI showed an improvement by 50.9% as there was an absence of payment to sukuk holders in 1Q21 vs RM27.5m in 4Q20.

YoY. Revenue was higher by 11.4% mainly driven by progressive revenue recognition from ongoing construction progress for existing projects. The development projects which mainly contributed to top line include M Vertica in Cheras, M Centura in Sentul and Meridin East in Johor. However, core PATAMI increased by >100% given the absence of the sukuk payment coupled with the recognition of cost savings from the finalization of certain construction contracts.

New sales of RM400m were achieved in 1Q21, representing 25% of its full year target of RM1.6bn mainly from the sales of M Centura, M Luna and M Adora. A total of RM606m launches (mostly from M Centura, M Vertica and M Luna) were carried out on 1Q21. Unbilled sales stood at RM1.7bn, representing a cover ratio of 1.5x.

Glove venture still on track. Mah Sing’s glove manufacturing factory in Kapar has received its business license and commenced its operation recently with bulk of the first shipment of gloves to be delivered in June 2021. Total lines planned for phase 1 is 12 production lines with maximum capacity of 3.68bn pieces of gloves per annum. 6 production lines are expected to be operational by end of 2Q, followed by another 6 by end of 3Q.

Outlook. For the month of April and May, Mah Sing achieved encouraging sales of RM250m (YTD : RM650m), on track to meet full year sales target of RM1.6bn. The group currently has c.RM1.1bn worth of property bookings on hand and is working on converting them into sales. Meanwhile, with the implementation of stricter MC03.0, Mah Sing shared that its sales gallery will be closed. However, they have been implementing virtual sales/SPA signing as part of its digitalisation efforts since last year. In terms of construction activity, Mah Sing noted that they will comply with the 60% capacity on their site which we believe will affect their progressive billings; however, this will be mitigated by the new contribution from their gloves business.

Forecast. Unchanged as results were inline.

We maintain BUY call with an unchanged TP of RM1.15 based on a SOP derived valuation. Our BUY call is premised upon its commendable take-up of recent launches, cover ratio of 1.5x 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 - 1 Jun 2021