1QFY21 CNP of RM39.5m is deemed within expectations as we expect earnings contribution from its new glove division to contribute strongly in 2HFY21 and cover the earnings shortfall from its property division impacted by the pandemic. 1QFY21 sales of RM0.4b is also in line with our/management’s target of RM1.7b/RM1.6b. Maintain FY21- 22E earnings. On unchanged SoP-TP of RM1.05, we upgrade Mahsing to OP (from MP) given the recent share price retracement.

Within expectations. 1QFY21 CNP of RM39.5m (+55% QoQ; +3.4x YoY) accounted for 21%/18% of our/consensus full-year estimates. We deem the results as broadly within expectations as we expect earnings contribution from its new glove division to contribute strongly in 2HFY21 and cover the earnings shortfall from its property division which would face lower productivity arising from the multiple lockdowns imposed (i.e. MCO 3.0 and FMCO). No dividends declared as expected as dividends are normally declared in the fourth quarter.

Sales in line. 1QFY21 sales of RM400m (+58% QoQ; +62% YoY) was backed by 1QFY21 launches of RM606m, also coming in line with our/management’s target of RM1.7b/RM1.6b. YTD sales (as of late- May) stood at RM650.5m.

Highlights. 1QFY21 CNP of RM39.5m surged 55% QoQ despite the seasonally lower revenue (-13%) mainly due to the absence of perpetual securities payments worth RM27.5m payable every 2Q and 4Q. Dissecting further segmentally, property segment margins improved +6ppt QoQ mainly attributable to recognition of cost savings from completed projects which incurred lower costs than initially budgeted.

YoY, 1QFY21 CNP leapt 3.4x on higher revenue (+11%) as 1QFY20 was bogged down by MCO 1.0. Aside that, we also note that 1QFY21 has lower financing costs (debt + perps) from the absence of perpetual sukuk payments (not the same as perpetual security) as Mahsing has switched out the RM540m perpetual sukuk which bore a higher interest rate of 6.8% for lower interest MTNs of 4.35% - allowing savings of c.RM13m/annum.

Roll out of glove lines intact. As of May 2021, Mahsing has rolled out a total of four glove lines and have made its first batch sale in the month itself. The contributions from its glove segment should start reflecting in 2QFY21 albeit at a modest quantum. The anticipated rollout of another eight lines scheduled at two lines/month till Sept 2021 remains intact. Mahsing is currently quoting spot prices between USD80-100/1k pieces and is negotiating to enter into longer term contracts with customers.

Maintain FY21-22E earnings post results. Note that we have pencilled in conservative glove ASPs of USD55/1,000 pieces and USD40/1,000 pieces for FY21 and FY22, respectively.

Upgrade to Outperform (from Market Perform) with unchanged SoP-TP of RM1.05 given the retracement in share price. While we do not foresee a blanket recovery for developers given the issues the sector is facing (i.e. affordability and stock overhang), we believe Mahsing’s mid-segment affordable products located in rather matured areas would be well received when the recovery kicks in. Moreover, the new earnings stream from its glove division will cascade strongly towards bottom-line, propelling profits above pre-pandemic levels in our opinion.

Source: Kenanga Research - 1 Jun 2021