Mah Sing recorded 1Q22 core PATAMI of RM40.4m came in above our but in line with consensus expectations. The results beat was due to stronger than expected contribution from property development segment. Mah Sing continues to record earnings improvement on both QoQ and YoY basis supported by strong sales, healthy margin and steady construction progress. We increase our forecasts by +20.7%/26.6% for FY22/FY23 to account for the results shortfall as well as higher property sales assumptions. We introduce FY24 forecast. Maintain BUY with a higher TP of RM0.90 (from RM0.87) based on SOP derived valuation. We continue to like Mah Sing for its asset-light and agile business model as well as its exposure in the affordable housing segment. In addition, the group also has a decent projected dividend yield of 4.5%.

Above ours but in line with consensus. Mah Sing recorded 1Q22 core PATAMI of RM40.4m (+1.8x QoQ; +2.7% YoY) forming 32% and 24.8% of our and consensus estimates. The results beat was due to stronger than expected contribution from property development segment. 1Q22 core PATAMI was arrived at after excluding net EIs of RM2.8m (mainly comprising of FV gain of financial assets redemption amounting RM2.7m).

Dividend. None (1Q21: None).

QoQ. Revenue declined by -19.4% mainly due to a decline in property development (- 24.8%) while partially offset by an increase in manufacturing (+5.4%). The lower property development revenue in current quarter is due to the completion of projects (M Centura completed in 4Q21, M Vista completed in Jan 2022) resulting in fewer ongoing projects and consequently lower progress billing recognition. Manufacturing revenue increase was due to the progressive scaling up in glove utilisation. Despite the decline in property development revenue, EBIT increased by +5.6% due to lower cost recognition for project at completion stage (likely from M Vista completed in Jan 2022). Subsequently, core PATAMI increased by 1.8x despite the decline in revenue as a result of (i) EBIT improvement in property development; and (ii) there was perpetual sukuk payment amounting RM27m in 4Q21.

YoY. Revenue increased by +4.8% mainly contributed by manufacturing (+18%) and a marginal increase in property development (+2.7%). Manufacturing increase was mainly due to the contribution from gloves segment (there was no contribution from the segment SPLY as the segment only started operations since May 2021) as well as stronger sales volume in the plastic segment. The marginal increase in property development was mainly attributed the stronger sales in the quarter. The manufacturing segment recorded LBIT of -RM7.8m (vs. RM5.1m SPLY) mainly dragged by gloves as the segment is still in the midst of ramping up utilization rate resulting in weaker operating leverage. Subsequently, the group recorded +2.7% in core PATAMI.

Property development. Mah Sing recorded 1Q22 new sales of RM450m (+40.6% QoQ; +12.5% YoY), representing 22.5% of its FY22 sales target. In 1Q22, the group launched RM180m of GDV, representing 7.5% of its FY22 launch target. Unbilled sales as at 1Q22 stands at RM2.03bn (from RM1.9bn in 4Q21), representing a healthy cover ratio of 1.51x of FY21 property development revenue. Mah Sing recorded strong sales growth as it likely benefitted from the end of HOC (c.60% of its properties are priced below RM500k) as there are no more stamp duty waiver for competing mid-range properties. Management guided that it is still on track to meet its launch target as there will be more launches in the subsequent quarters. Notably, the recently launched M Senyum Phase 1 in May 2022 with estimated GDV of c.RM118m had achieved a 100% take-up rate.

Gloves. Manufacturing segment recorded 1Q22 LBIT of -RM7.8m, a marginal improvement from RM8.1m in 4Q21. We expect the glove segment to record sequential improvements as the group secures more orders and improves its product mix. The outlook for glove makers are gradually improving with demand potentially recovering in 2H22 mainly driven by the completion of inventory drawdown activities by glove buyers. Nonetheless, downside risk comes from the persistent inflationary cost pressures.

Forecast. We increase our forecasts by +16.5%/22.7% for FY22/FY23 to account for the results shortfall as well as higher property sales assumptions. We introduce FY24 forecast.

Maintain BUY; TP: RM0.90. Our TP derived based on SOP valuation increases to RM0.90 (from RM0.87) following our earnings revision as well as the rollover of valuation base year for the manufacturing segment to FY23 (from FY22). We continue to like Mah Sing for its asset-light and agile business model which allows it to adapt and pivot its launching strategy in response to the changing sector dynamics. The group’s exposure in the affordable housing segment (c.60% priced at <RM500k ) should continue to do well as home buyers are likely to opt for lower priced house due to the ending of HOC (no more stamp duty waiver for competing mid-range properties) and rising cost of living. Furthermore the group’s healthy net gearing level of 0.33x and the positive cash flow from projects completion also allow plenty of room for further land banking exercise to anchor its future growth. Finally, the group remains committed to its 40% dividend payout policy, which gives a decent projected FY22 dividend yield of 4.5%.

Source: Hong Leong Investment Bank Research - 1 Jun 2022