FY18 CNP of RM190m came below expectations while sales of RM1.50b fell short of management’s initial target and our estimate. Full-year dividend of 4.5 sen is also weaker than expected. Management is targeting at least RM1.50b sales in FY19 driven mainly by Klang Valley affordable housing products. Reduce FY19E CNP by 14%. Downgrade to MARKET PERFORM with a lower TP of RM1.05 following earnings disappointment and recent share price rebound.

Below expectations. FY18 CNP* of RM190m is below expectations, making-up 79% of street’s full-year estimate and 91% of ours. Note that consensus may have excluded the perpetual bond interest cost from CNP calculations. The negative deviation is due to lower-than-expected billings due to timing of recognition of some of the more recently launched projects. Full-year sales of RM1.50b also fell short of management’s initial target of RM1.80b and our RM1.65b forecast. First and final dividend is 4.5 sen which only accounted for 82% of our forecast of 5.5 sen.

Perpetual bonds cost crimps into earnings. QoQ, 4Q18 CNP declined by 5% given a tepid top-line growth (+2%) whilst its perpetual bond interests were up by 23% to RM22m. YoY, FY18 CNP dipped by 36% on the back of lower billings given a softer top-line (-25%) and on- set of the second perpetual bond interest cost this year. Positively, EBIT margin was stable at 16.3% (+0.2ppt). Net cash position has strengthened to 0.19x but we note that inventories have increased 16% to RM731m (at cost) due to completions of on-going projects.

FY19E sales target to be at least RM1.50b, according to management. This will be driven by RM2.2b worth of launches from its on-going projects and is largely driven by more urban affordable units to residential upgrades of which 81% are priced below RM700,000. With its light balance sheet, we note that MAHSING is still on the lookout for affordable housing land banks in Klang Valley, likely those in more established areas.

Reduce FY19E CNP by 14% post house-keeping and 16% downward revision in our sales assumptions to RM1.52b. We also introduce FY20E numbers and sales of RM1.54b. Unbilled sales of RM2.38b provides about 1-year visibility.

Lower TP to RM1.05 (from RM1.10) based on a wider SoP discount of 63% (-1.25SD) on its FD SoP of RM2.84 (from 61% pegged at -1.0SD) given the weaker results. This is in-line with our universe’s valuation range (-2.0SD to -1.0SD) while MAHSING’s positioning as an affordable housing player warrants the better-end of our applied discount spectrum. Its Fwd. PER is now trading at an average of 13x, which is inline with their historical average while most of its peers’ Fwd. PERs are still trading below historical averages. Nonetheless, Fwd. PBV of 0.7x is near historical trough levels whilst its above peers’ average dividend yields of 4.0% provide some downside support. Key catalysts lie with landbank replenishment in the affordable housing space as the group has activated most of its landbanks; note that our FD SoP already included GDV replenishments of RM2.2b. We may re- look at our valuations upon more significant ROE improvements or its ability to secure higher than targeted sales. Share price has rebounded by 11% in-line with the KLPRP Index. Downgrade to MARKET PERFORM (from OP).

Risks include: (i) weaker/stronger-than-expected property sales, (ii) margin compressions, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 28 Feb 2019