Mah Sing reported FY21 earnings of RM107.2m (+80% YoY) which came in below expectation largely due to pre-operating losses from gloves segment. Recorded FY21 sales of RM1.6bn that matched its full year target. For FY22, the group is setting a higher sales target of RM2bn (+25%) on the back of RM2.4bn planned launches. We believe Mah Sing’s property projects will continue to gain traction from buyers mainly due to their strategic locations with large captive market, affordable price points and well-designed features that are aligned with current market demand. We cut our earnings by c.40% for FY22-23 in view of the delay in gloves commissioning as well as normalised ASP moving forward. We maintain BUY call with a lower TP of RM0.87 (from RM0.98) ba sed on a SOP derived valuation.

Below expectations. Mah Sing reported 4QFY21 core PATMI of RM14.4m (-64% QoQ, -41.8% YoY), which brought FY21’s sum to RM107.2m (+80% YoY). The results came in below expectation, forming 86% of our and 60% consensus full year forecasts largely due to pre-operating losses from gloves segment as there were some delay in production due to the lockdown and flood. Note that we derive FY21 core PATMI number after including payments to holders of perpetuals (RM54.1m), while it may not be the case for consensus figures. Proposed DPS of 2.65 sen for FY21.

QoQ/YoY. Despite registering higher total revenue (+47.4% QoQ; +13.7% YoY) (mainly from new gloves contribution and higher progressive billings from normalisation of construction activity as well as higher sales prior to ending of HOC), core PATMI was lower (-64% QoQ, -41.8% YoY) due to higher COGS (+65.9% QoQ; +13.7% YoY) from pre-operating losses of gloves segment.

YTD. Core PATMI showed an improvement by +80% YoY as revenue was higher by 14.6% YoY as well as lower payment to perpetuals holders (-26.1%) coupled with flattish other expenses (-0.9%).

New sales of RM320m were achieved in 4Q21, which brought FY21 sales to RM1.6bn which matched its full year target. A total of RM1.4bn launches were carried out on FY21 with strong take up rate of 100% for MCentura, 77% for MArisa 86% for MVertica (first 4 towers), 97% MAruna and 90% for MLuna. Unbilled sales stood at RM1.9bn, representing a cover ratio of 1.4x.

Glove business update. Its glove business is still loss making as of FY21 mainly attributed to the plant's pre-operating expenses and lower absorption of overhead costs as a result of low production volume restrictions during EMCO, Phase 1 and recent flood. Management expects better performance for Mah Sing Healthcare going forward as its 12 production lines are now fully commissioned, and it has obtained required certifications for medical-grade glove sales to the United States, Canada, the European Union, and the European Economic Area (EEA).

Outlook. Mah Sing achieved encouraging bookings of RM800m despite ending of HOC as their product are mostly <RM500k (already being exempted for stamp duty). For FY22, the group is setting a higher sales target of RM2bn (+25%) on the back of RM2.4bn planned launches. Price points are even more attractive with 60% of properties <RM500k, and 94% <RM700k. We believe Mah Sing’s products will continue to gain traction from buyers mainly due to their strategic locations with large captive market, affordable price points and well-designed features that are aligned with current market demand.

Forecast. We cut our earnings by c.40% for FY22-23 in view of the delay in gloves commissioning as well as normalised ASP moving forward.

We maintain BUY call with a lower TP of RM0.87 (from RM0.98) based on a SOP derived valuation. Our BUY call is premised upon its commendable take-up of recent launches, cover ratio of 1.4x to provide earnings visibility coupled with dividend payout ratio of 40%.

Source: Hong Leong Investment Bank Research - 1 Mar 2022