1Q19 CNP of RM37m came within our, but below street’s, expectation. The quarter’s sales of RM301m are on track to meeting management’s target and our estimate. No dividends declared, as expected. Management is sticking to its FY19 sales target of at least RM1.50b, driven mainly by its Klang Valley affordable housing products. No changes to earnings. Reiterate OUTPERFORM and TP of RM1.05.

Within our, but slightly below street’s, expectation. 1Q19 CNP* of RM37m is within our expectation at 20% but slightly below the street’s full-year estimate at 16%. We believe that street’s estimates could be on the high-side due to definitions of CNP where some forecasts included perpetual sukuk distributions while others did not. This quarter’s sales of RM301m accounted for 20% each of management’s target of at least RM1.50b and our RM1.52b forecast, implying that they are still on track. No dividends, as expected.

Results’ highlights. YoY, 1Q19 CNP dipped by 20% primarily due to a 23% drop in revenue given the declining annual sales trend over the last few years, but was partly cushioned by an improvement in EBIT margin (+1.5ppt to 16.6%) on better product margin mix as some projects are at more advanced billing stages. QoQ, 1Q19 CNP fell 16% on the back of weaker billings due to recognition timing while EBIT margin was relatively flattish (-0.4ppt to 16.6%). Net cash position remained strong at 0.20x while we note that inventories have dropped by 10% QoQ to RM660m (at cost), thanks to their strong marketing initiatives, including the Home Ownership Campaign.

FY19E sales target to be at least RM1.50b, according to management, to be driven by RM2.2b GDV worth of launches (of which RM388m was launched over 1Q19) from its on-going projects. Products offered are mainly 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 landbanks in Klang Valley, likely those in more established areas.

No changes to earnings. Unbilled sales of RM1.58b provide less than 1-year’s visibility.

Reiterate OUTPERFORM with an unchanged TP of RM1.05 based on a SoP discount of 63% (-1.25SD) on its FD SoP of RM2.84. This is in-line with our universe’s valuation range (-1.0SD to trough levels) while MAHSING’s positioning as an affordable housing player warrants the better-end of our applied discount spectrum. Nonetheless, Fwd. PBV of 0.6x is at historical trough levels and has above peers’ average dividend yields of 4.4% (universe average: 2.2%). We also expect the group to continue landbanking replenishment in the affordable housing space (note that our FD SoP already included GDV replenishments of RM1.7b). YTD-wise, the stock performance has lagged behind the KLPRP (+2.6%) at +0.6%.

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

Source: Kenanga Research - 31 May 2019