FY19 CNP of RM109.1m (-43% YoY) fell slightly short of expectations, accounting for 91%/92% of our/consensus forecasts as bottom-line was burdened by weaker property earnings, impairment charges and hotel operation losses. Maintain MARKET PERFORM call with a lower SoP-derived TP of RM0.69 (from RM0.75).

Slightly below. FY19 CNP of RM109.1m (-43% YoY) accounted for 91%/92% of our/consensus expectations. The properties division saw lower contributions with pretax profit of RM257.1m (-19%) and revenue of RM1.41b (-23%). The hotel segment – which is related to properties in Johor sold under a sale-and-lease arrangement with guaranteed returns – posted losses of RM30.4m (comprising operating loss of RM13.7m + impairment charges of RM15.1m + finance cost of RM1.6m). Overall performance was also hit by impairment on inventory of completed properties (RM24.2m).

Results’ highlights. 4QFY19 CNP of RM17.7m was down 44% QoQ and 59% YoY, as the property division contributed pretax profit of RM65.6m (+7% QoQ/-18% YoY) while the bulk of the losses in the hotel segment was recognised in the final quarter. MahSing has announced DPS of 3.35 sen for FY19, which translates to dividend yield of 5%. As of end-Dec 2019, the Group has net cash of RM497m and perpetual securities and perpetual Sukuk totalling RM1.3b.

Outlook. The Group launched RM1.9b worth of properties and achieved sales of RM1.5b last year. For FY20, it has set a launch target of RM2.1b with sales projection of at least RM1.6b. Its strategy is to focus on the affordable homes segment (with selling price of below RM700k), which accounts for 84% of FY20 sales target.

Earnings tweak. Current unbilled property sales of RM1.73b will underpin forward earnings. Following the results, we have trimmed our net profit forecast to RM115m (-10%) for FY20 and introduce FY21E net profit of RM111m.

Trim TP to RM0.690 (from RM0.750). This is based on SoP valuation (see table overleaf), which is anchored by an updated P/BV valuation band for the properties business. The stock has declined 25% since mid-Sep last year, currently trading near its 11½-year low. Maintain MARKET PERFORM call.

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 - 2 Mar 2020