Mah Sing reported 1H22 core PATAMI of RM70.2m (+28.9% YoY), which were within expectations. Sequentially, the group posted a steady showing in its property development segment, while its manufacturing segment recorded narrower losses. Its property sales continue to gain momentum recording healthy growth. Maintain forecast for FY22, but lower FY23/FY24 earnings by -0.4%/-1.3% as we factor in lower utilisation rate assumptions for the glove segment. Consequently, our TP is lowered to RM0.84 (from RM0.90) based on SOP valuation.

Within expectations. Mah Sing reported 2Q22 core PATAMI of RM29.8m (-26% QoQ, +1.26x YoY), which brought 1H22’s sum to RM70.2m (+28.9% YoY). The results was within our (47.8%) and consensus (46.6%) full year forecasts. 1H22 core PATAMI was arrived at after including payment to perpetual sukuk holders (RM22.4m) and excluding net EIs of -RM6.4m mainly from PPE write-off (-RM6.4m).

Dividend. None (2Q21: none). 1H22: none (1H21: none).

QoQ. Revenue increased by +25.1% mainly contributed by property development segment (+33.7%) as there were higher sales contribution from completed and near completed properties. Despite the revenue increase, core PATAMI declined by -26% due to (i) lower property development EBIT margin of 17.3% (vs. 23.3% in 1Q22) as there were lower cost recognition for projects at completion stage in previous quarter; and (ii) perpetual sukuk payment of RM22.4m. Excluding the perpetual sukuk payment, core PATAMI would have increased by +29.4%.

YoY/YTD. Revenue increased by +23.6% YoY and +14.5% YTD mainly driven by the property development segment (+25.1% YoY, +12.9% YTD) due to (i) better construction progress as there were lower construction activities in June SPLY due to MCO3.0; and (ii) better property sales. Consequently, the group recorded 2Q22 core PATAMI of RM29.8m (+1.26x from a low base of RM13.2m) and 1H22 core PATAMI of RM70.2% (+28.9% from 1H22).

Property development. Mah Sing recorded 2Q22 new sales of RM550m (+22.2% QoQ; +37.2% YoY), bringing 1H22’s sum to RM1bn (+24.8% YoY), representing 50% of its FY22 sales target of RM2bn. New launches for 2Q22 were RM217m, bringing 1H22 launches to RM397m (-50.4% YoY), representing 16.5% of its full year launch target of RM2.4bn. Unbilled sales as at 2Q22 stood at RM2.16bn (+6.2% from RM2.03bn in 1Q22), representing a 1.61x cover of FY21 property development revenue. The group continues to record strong sales momentum as its products priced in the affordable segment continue to meet market demand. Most of the group’s launches are back-loaded to 2H22 with GDV of RM1.95bn, which should help to support the group in sustaining in sales momentum and to meet its sales target.

Manufacturing. Manufacturing recorded 2Q22 LBIT of -RM1.2m, which narrowed from -RM7.8m in 1Q22. The better performance sequentially was likely due to increase in utilization rate for the gloves segment resulting in better operating leverage. The outlook for 2H22 for the glove segment remains challenging due to the supply glut as more players comes on stream, while demand has tapered off following the easing of the pandemic. Nonetheless, as Mah Sing’s smaller size coupled with its low base utilization rate could be a redeeming feature as any increase in orders is more likely to fill up its capacity sooner leading to improved utilization rate.

Forecast. Unchanged for FY22, but we lower our FY23/FY24 forecasts by -0.4%/- 1.3% as we factor in lower utilisation rate assumptions for the glove segment.

Maintain BUY with a lower TP of RM0.84 (from RM0.90) based on SOP valuation following our earnings revision on the gloves segment. 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 products with exposure mainly in the affordable housing segment (c.60% priced at <RM500k) should continue to enjoy resilient demand amid the current inflationary environment.

Source: Hong Leong Investment Bank Research - 30 Aug 2022