Mah Sing recorded 9M22 core PATAMI of RM117.3m (+23.8% YoY), which were above our but within consensus’ expectations. We increase our FY22/23/24f by +8%/1.9%/0.4% to account for higher sales assumptions. Notably, the group maintained its strong sales momentum and recorded 5-year high quarterly new sales during the quarter. Maintain BUY with an unchanged TP of RM0.84 based on SOP valuation. 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.

Above our but within consensus. Mah Sing’s 3Q22 core PATAMI of RM47.1m (+57.7% QoQ; +16.9% YoY) brought 9M22’s sum to RM117.3m (+23.8% YoY), which was above our (79.8%) but within consensus (76.7%) expectations. The positive deviation was due to stronger than expected sales. 9M22 core PATAMI was arrived at after including payment to perpetual sukuk holders (RM22.4m) and excluding net EIs of -RM13.9m mainly from PPE write-off (-RM6.4m) and inventories write-off (- RM8.6m).

Dividend. None (3Q21: none). 9M22: none (9M21: none).

QoQ. Revenue increased by +23.8% due to (i) better site progress; and (ii) higher sales from completed and near completed properties. Core PATAMI increased by +57.7% as there was payment of RM22.4m to perpetual sukuk holders in preceding quarter. Excluding that, core PATAMI declined by -9.9% due to (i) higher admin expenses (+12%); and (ii) higher effective tax rate (37.1% vs. 28.1% in 2Q22) due to provision for Prosperity Tax.

YoY. Revenue increased by +84.1% YoY mainly driven by property development segment (+1.1x) due to (i) better construction progress as there were lower construction activities SPLY due to MCO3.0; and (ii) better property sales. In turn, core PATAMI increased by +16.9% as the top line improvement was partially offset by higher effective tax rate of 37.1% vs. 22.9% SPLY due to provision for Prosperity Tax.

YTD. Revenue increased by +35.3% due to the same reasons as YoY above. In turn, core PATAMI increased by +23.8% as the top line improvement was partially offset by higher effective tax rate of 30% vs. 22.8% SPLY due to provision for Prosperity Tax.

Property development. Mah Sing reported 5-year record high quarterly new sales of RM640m (+6.8% QoQ; +33.6% YoY) in 3Q22, which brought 9M22’s sum to RM1.69bn (+32% YoY), representing 84.5% of its FY22 sales target of RM2bn. Management is confident in achieving its full year sales target. New launches for 3Q22 was RM421m, bringing 9M22 launches to RM867m (+36.1% YoY), representing 36.1% of its initial full year launch target of RM2.4bn. The lower YTD launches were due to (i) the high raw material cost mid-year; and (ii) the existing projects were sufficient to sustain the strong sales momentum. Unbilled sales as at 3Q22 increased to RM2.3bn (+6.5% QoQ), representing 1.71x cover of FY21 property development revenue.

Manufacturing. Manufacturing recorded 3Q22 LBIT of -RM5m (2Q22: -RM1.2m; 3Q21: -RM12.3m). The wider losses QoQ was likely due to lower ASPs in the glove segment resulting in lower margin. Management guided that it had recently secured new buyers and as such expect losses to narrow in subsequent quarters as operating leverage improves arising from higher sales volume.

Forecast. Given the results beat, we increase our FY22/23/24f by +8%/1.9%/0.4% to account for higher sales assumptions.

Maintain BUY with an unchanged TP of RM0.84 based on SOP valuation. 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 - 1 Dec 2022