Mah Sing reported 4Q22 core PATAMI of RM51m, bringing FY22’s sum to RM148.1m (+35.7% YoY). The result was within expectations. The group recorded FY22 sales of RM2.12bn (+32.5% YoY), exceeding its FY22 sales target of RM2bn. Maintain forecasts and BUY rating with an unchanged TP of RM0.84 based on SOP valuation. We remain positive on the group’s prospects given that its products are priced in the affordable-to-mid range properties which should continue to do well given the growing middle income class in Klang Valley region. In addition, FY23 also should see earnings improve on the back of (i) better progress billing from easing of labour shortage issue; and (ii) absence of Prosperity Tax. The stock also provides a decent projected FY23 dividend yield of 5%.

Within expectations. Mah Sing reported 4Q22 core PATAMI of RM51m (+28.7% QoQ; +2.5x YoY), bringing FY22’s sum to RM148.1m (+35.7% YoY). The result was within our (95.5%) and consensus (96.9%) expectations.

EIs. FY22 core PATAMI was arrived at after including payment to perpetual sukuk holders (RM22.4m) and excluding net EIs of -RM0.8m mainly from fire insurance (RM23.7m), fire damage restoration costs (-RM4.8m), FV loss on investment property (-RM5m), inventories write-off (-RM9m) and PPE write-off (-RM6.8m). Most of the PPE, inventories write-off as well as the restoration costs were in relation to a fire incident in the plastic factory in May 2022, which were sufficiently covered by insurance.

Dividend. 3 sen, ex-date: TBD (4Q21: 2.65 sen). FY22: 3 sen (FY21: 2.65 sen).

QoQ. Revenue was flattish (-0.03%). Despite that, core PATAMI increased by +28.7% mainly due to lower tax expenses of RM18.4m (-38.2% from RM29.8m).

YoY. Revenue increased +24.8% (property: +28.1%, manufacturing: +12.8%). The higher property revenue was due to (i) higher property sales (+34.7% YoY); and (ii) better construction activities. Higher manufacturing revenue was due to commencement of glove plant. In turn, core PATAMI increased by 2.5x to RM51m due to (i) absence of perpetual sukuk payment (vs. RM27m SPLY); and (ii) higher revenue.

FY22. Revenue increased +32.1% (property: +37.1%, manufacturing: +19.2%) due to same reasons as YoY paragraph above. Consequently, core PATAMI increased by +35.7% as top line improvement was moderated by higher tax expense of RM77.3% (+64.6% from RM47m) mainly due to provision for Prosperity Tax.

Property development. Mah Sing reported 4Q22 sales of RM431m (-32.7% QoQ; +34.7% YoY), bringing FY22’s sum to RM2.12bn (+32.5% YoY), exceeding (106%) its FY22 sales target of RM2bn. FY22 sales include land sales amounting to RM115.3m. New launches for 4Q22 was RM353m (M Astra Tower 1 launched on 17 Dec 2022), bringing FY22 launches to RM1.22bn (-12.9% YoY), representing 50.8% of its initial full year launch target of RM2.4bn. Unbilled sales as at 4Q22 moderated to RM2.18bn (-5% QoQ), representing 1.19x cover of FY22 property development revenue. The softer sales for the quarter was due to a delay in launch for M Astra as a result of GE15. The project achieved >95% booking as at end-Dec 2022, however, the bulk of the sales can only be recognized in 1Q23.

For FY23, the group is setting sales target of RM2.2bn (+3.8% YoY). The group however does not have a launch target for FY23 as it will time its launches according to the take-up rate of its current products. The group has RM2.5bn worth of ready-to-launch products available.

Manufacturing. Manufacturing recorded 4Q22 LBIT of -RM9m (3Q22: -RM5m; 4Q21: -RM8.1m). The wider losses QoQ was due to a provision amounting to c.RM8m for unused gas capacity for its glove segment. Management guided that the glove segment should record narrower losses in FY23 as order quantity from its new customers should improve. Meanwhile, the group is also looking to expand its plastic segment in Johor, given that the current capacity in Klang factory is almost fully utilized.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM0.84 based on SOP valuation. We continue to like Mah Sing for its agile business model which allows it to adapt and pivot its launching strategy in response to the changing sector dynamics. We remain positive on the group’s prospects given that its products are priced in the affordable to-mid range properties which should continue to do well given the growing middle income class in Klang Valley region. In addition, FY23 also should see earnings improve on the back of (i) better progress billing from easing of labour shortage issue; and (ii) absence of Prosperity Tax. The stock also provides a decent projected FY23 dividend yield of 5%.

Source: Hong Leong Investment Bank Research - 1 Mar 2023