1QFY20 CNP of RM11.7m (-68% YoY) missed expectations, representing only 10%/8% of our/consensus full-year projections. This comes as the first quarter saw slower recognition of progress billings and weaker property sales amid the MCO implementation. Following its share price appreciation (up 39% since the last update), we are downgrading our call from OUTPERFORM to MARKET PERFORM with an unchanged TP of RM0.45 (based on PBV multiple of 0.34x or -1.5SD from mean).

Below par. 1QFY20 posted CNP of RM11.7m (-68% YoY/-34% QoQ) on the back of revenue of RM371.1m (-18% YoY/-16% QoQ). This is below our (at 10%) and market (at 8%) expectation as the overall result was dragged mainly by work disruptions arising from the implementation of the MCO (Movement Control Order) beginning from 18 March.

Results’ highlights. The properties division – which is the key earnings contributor – reported a pretax profit of RM39.0m (-43% YoY/-41% QoQ) against a turnover of RM281.3m (-21% YoY/-18% QoQ) in the first quarter. Separately, the plastics segment made a pretax profit of RM2.9m (+9% YoY/-54%QoQ) while the hotel business narrowed its losses to RM3.4m (from -RM4.1m in 1QFY19 and -RM18.4m in 4QFY19). As of end-Mar this year, the Group has net borrowings (including perpetual securities) of RM820.6m, translating to a net gearing of 23.5%.

Outlook. Despite the prevailing challenging times, Mah Sing has kept its full-year property sales projection of at least RM1.6b. About 84% of the targeted sales is expected to come from the affordable homes segment (with selling price of

Earnings delay. Unbilled property sales of RM1.69b as of end-Mar 2020 will drive earnings visibility going forward. Still, as 2QFY20 will likely be weaker sequentially due to a longer MCO period, the timing recognition of progress billings could be stretched out further. Consequently, we have adjusted our FY20E/FY21E earnings by -49%/+11% to RM59m/RM123m.

TP remains at RM0.45. This is derived from an unchanged PBV multiple of 0.34x (at -1.5SD from mean) on adjusted BV per share of RM1.32 (after imputing a 40% discount to its latest available inventory level of completed properties). The stock has climbed 39% since our last sector update in end-March to RM0.465 currently, thus prompting us to downgrade our call from OUTPERFORM to MARKET PERFORM.

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 - 1 Jun 2020