Period

2Q15/1H15

Actual vs. Expectations

1H15 earnings of RM189m came within expectations, making up 48% of street’s FY15 estimates and 50% of ours. 7M15 sales of RM1.06b came below expectations, making up 32%-31% of our/management’s FY15 targets of RM3.3b-RM3.4b. This was largely due to less new launches and the general weak property market environment.

Dividends

None, as expected.

Key Results Highlights

QoQ, 2Q15 earnings fell by 8%. Although topline was flat while other income was boosted up by 256% to RM10.8m due to sales commissions received, property segment’s operating margin was down by 2.4ppt to 15.2% on lower product margin mix.

YoY, 1H15 earnings was up by 12% on higher billings, which helped negate the slight group’s pretax margin compression of 0.9ppt to 15.8% due to similar reasons above. Meanwhile, net gearing improved from 0.21x to current net cash of 0.01x.

Outlook

For the first time since our coverage, MAHSING is slashing its sales target substantially to RM2.3b from RM3.4b for FY15.

MAHSING is no longer proceeding with the acquisition of the 88.7ac land in Puchong. We prefer that the group does not pursue the land deal, especially when key development parameters have yet to be approved. Stripping-off this land deal will result in: (i) FY16E net gearing of 0.02x which will improve to a net cash position of 0.10x, and (ii) our FD RNAV reduced by 10% to RM2.83.

It is evident that the company is taking a very conservative view amidst the current volatile environment and is prioritising cashflow management and financial stability over sales growth until there is better market visibility. While it is painful to see the company slashing its sales targets substantially and terminating sizeable landbanking deals, we laud the company for taking this approach. (Refer overleaf for details).

Change to Forecasts

Trimming FY15-16E earnings by 1%-3% (refer overleaf). Unbilled sales of RM4.8b provides about 1.5 years visibility.

Rating

Maintain MARKET PERFORM

Valuation

Lowering TP by 10% to RM1.47 based on unchanged 48% discount to its reduced FD RNAV of RM2.83. Our applied RNAV discount is close to our big cap developers’ average of 52%. Although the stock is trading near trough valuations of 9.3-8.9x FY15-16E PERs, sector dynamics are capping near-term upsides. Positively, downside risk is somewhat minimised by it being a sector laggard, and having highly institutionalized shareholding, while FY15E yield is slightly higher at 4.4% vs. big cap developers’ range of 3.1% (except UOA with yield of 7.1%).

Risks to Our Call

Weaker-than-expected property sales, Higher-thanexpected sales and administrative costs, Negative real estate policies, and Tighter lending environments.

Source: Kenanga Research - 27 Aug 2015