Mah Sing reported 1H21 core PATMI of RM52.7m (+4.36x YoY) that were below our and consensus expectation as glove business contribution are expected to be lower than initially projected due to declining ASPs. New property sales of RM801m were achieved in 1H21 (50% of its sales target). There will be a 2- month delay in completion of the 12 gloves production line due to lockdown. We cut our earnings by 42% for FY21 and 33% for FY22-23 to account for lower gloves ASP. We maintain BUY call with a lower TP of RM0.98 (from RM1.15) based on a SOP derived valuation.

Below expectations. Mah Sing reported 2QFY21 core PATMI of RM13.4m (-65.9% QoQ, +23.6x YoY), which brought 1H21’s sum to RM52.7m (+4.36x YoY); forming 25% of our and 26% consensus full year forecasts. We deemed the results as below expectation as glove business contribution is now expected to be lower than we initially projected due to declining ASPs. Note that we derive core PATMI number after including payments to holders of perpetuals (RM27.1m).

QoQ. Top line rose by 6.1% attributable to higher property development revenue driven by higher progressive billings from more advanced construction for projects like Ferringhi Residence, M Aruba, MLuna and M Oscar. Nonetheless, core PATAMI declined by 65.9% as there was an absence of payment to sukuk holders in 1Q21 vs RM27.1m in 2Q21. Excluding this, core PATAMI would remain flattish (+3%).

YoY/YTD. Core PATAMI showed an improvement by +23.6x YoY/+4.3x YTD as revenue was higher by 46.9% YoY/27.2% YTD mainly driven by higher contribution from property development segment (+49% YoY/+28% YTD) and plastics segment (+54% YoY/+34% YTD) largely due to low base effect SPLY.

New sales of RM401m were achieved in 2Q21, which brought 1H21 sales to RM801m (50% of its full year target of RM1.6bn). A total of RM800m launches were carried out on 1H21 with strong take up rate of 100% for MCentura, 96% for MArisa (first 3 phases), 93% for MVertica (first 3 towers) and 89% for MLuna. Unbilled sales stood at RM1.8bn, representing a cover ratio of 1.5x.

Glove business update. Currently there are 8 production lines that have been installed whereby 6 lines are under commercial run while 2 lines are under test run. There will be a slight delay in completion of all 12 production lines due to the lockdown, which will now be fully installed in Nov (instead of Sep). According to management, current ASP has declined to USD50-60/1000 pieces while costs are at USD 36-40/1000 pieces before taxes.

Outlook. For the month of July and August, Mah Sing achieved encouraging sales of RM260m (YTD: RM1.06bn) coupled with c.RM860m worth of property bookings, on track to meet full year sales target of RM1.6bn. To-date, the Group has managed to get close to 100% of its workforce across all business segments in property, healthcare and plastics to receive 1st dose of vaccination while c.80% have been fully vaccinated. Overall, we are expecting a strong 2H contribution from a recovery in property development segment as well as full contribution from gloves segment.

Forecast. We cut our earnings by 42% for FY21 and 33% for FY22-23 to account for lower ASP for gloves moving forward. We maintain BUY call with a lower TP of RM0.98 (from 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 boost to earnings.

Source: Hong Leong Investment Bank Research - 1 Sept 2021