9M17 CNP of RM237m is slightly below market’s expectation but within our estimate at 67% and 70%, respectively. Sales of RM1.26b over 9M17 is on track to meeting our/management’s full-year target. No dividends, as expected. Earnings estimates are unchanged. We are expecting more land banking news given their strong net cash position. Upgrade to OUTPERFORM with an unchanged TP of RM1.63.

Missed market’s expectation but within ours. 1H17 CNP of RM237m is slightly below consensus’ expectation at 67% of full-year estimate but within ours at 70% of our estimates. We believe street’s estimates may not have imputed the perpetual bond interest costs or have been aggressive with margins. Headline sales of RM1.26b over 9M17 is on track at 70% each of our FY17E target of RM1.80b and management’s minimum target of RM1.78b. No dividends as expected.

Still in a net cash position. QoQ, 3Q17 CNP was down by 18% primarily from the semi-annual perpetual bond interests incurred while revenue was slightly weaker (-3%) while group EBIT margin was relatively stable at 16.8% (+0.3ppt). YoY, 9M17 CNP slid 11% as billings were weaker resulting in softer revenue (-3%) and higher overheads (+5%) driven by increased administrative and other expenses; note that 9M16 CNP excluded the one-off cost from redemption of its convertible bond. MAHSING remains in a strong net cash position of 0.13x.

Expect more land banking news, given their light balance sheet. We expect more Klang Valley mass-market driven type projects to be secured over the next 6–12 months and have built-in a GDV replenishment assumption of RM2.2b. We are also confident of the group achieving its sales targets as their recent preview of M Vertica@Cheras Tower A has recorded strong bookings of 85%. Besides continuous efforts to clear inventories/WIPs, key new launches in 4Q17 is expected to amount to c.RM1b including M Vertica, M Centura@Sentul, M Vista@Penang and Fern@Meridin East as well as release of new phases of on-going launches.

No changes to earnings. Unbilled sales of RM2.83b provides close to one year’s visibility.

Upgrade to OUTPERFORM with an unchanged TP of RM1.63 (from MARKET PERFORM) based on a property RNAV discount of 48% (in line with big-cap peers’ historical average) or implied SoP discount of 43% to a FD RNAV of RM2.85. Since the slew of negatives sector news recently, many property stocks, including MAHSING, have taken a beating. However, we believe this is unwarranted as MAHSING is now focused on affordable housing developments implying minimal impact from the recent freeze on luxury property developments while potential OPR hikes are unlikely to deter genuine first home buyers as the impact of the rate hikes are not overly detrimental to the current affordability equation. Additionally, the stock stands to benefit from potential land deals. At these levels, we think FY17-18E FD Core PER are decent at 11x each vs. historical mean levels of 12x while the stock offers a better than average dividend yield of 4.4% vs. big-cap peers’ average of 2.8%.

Risks include: (i) weaker-than-expected property sales, (ii) margin issues, (iii) negative real estate policies, and (iv) deterioration in lending environment.

Source: Kenanga Research - 30 Nov 2017