FY21 CNP of RM106m is within our, but below consensus, expectation. FY21 sales of RM1.6b are inline. Management guides RM2.0b sales backed by RM2.4b worth of launches. We are less optimistic and only targets sales of RM1.7b. The weak glove ASPs given the oversupply currently experienced throughout the industry might prove challenging for a new comer like MAHSING in the near term. In view of that, we lower our TP to RM0.65 (from RM0.75) on a lower PBV of 0.45x (-1SD) to price in the heightened earnings downside risk.

Within our but below consensus expectations. 4QFY21 CNP of RM13m led FY21 CNP to RM106m – within our estimate at (99%) but below consensus’ at 83%. We believe the shortfall against consensus stemmed from weaker-than-expected contribution from its maiden glove division. Meanwhile, the 2.65 dividend declared is also within our 3.0 sen estimate.

Sales in line. 4QFY21 sales of RM320m led FY21 sales to RM1.6b – in line with our/management’s target of RM1.6b. Such sales quantum was backed by launches worth RM1.44b.

Highlights. QoQ, 4QFY21 CNP of RM13m came off 68%, mainly due to the RM27.1m perpetual securities distribution payable every 2Q and 4Q. Ignoring this distribution for comparison purposes, earnings would actually come in flat despite revenue increasing 47% as property margins were weaker QoQ. 3QFY21 margins were better on cost savings upon account finalisation for certain projects completed. Meanwhile, we note that its maiden gloves division continued to incur losses this quarter due to the lack of economies of scale in the absence of key licences (i.e. FDA) for exporting medical grade gloves. YoY, FY21 CNP leapt 69% on higher revenue (+15%) as FY20 was bogged down by a more stringent lockdown.

Management guides RM2.0b sales, backed by launches worth RM2.4b. We are less optimistic and target only RM1.7b worth of sales amidst the absence of HOC this year and the anticipation of interest rate hikes.

Tough climate in the gloves space. Our channel checks reveal that ASPs are now hovering at USD22/1,000 pieces – similar to pre pandemic levels. While we had completely omitted the glove contributions in our earnings assumptions since a quarter ago (upon 3QFY21 earnings announcement), we do not discount the possibility of this division continue incurring losses in the near future if ASPs remain low. As of Dec 2021, MAHSING has fully commissioned 12 glove lines (3.7b/annum capacity) and has secured licenses to distribute medical grade gloves to Europe, US and Canada. That said, given the oversupply situation in the market now, demand remains weak and ASPs will likely remain under pressure.

Keep FY22E earnings unchanged and introduce FY23E earnings of RM141m. Maintain Market Perform with a lower TP of RM0.65 (from RM0.75) after reducing FY22E PBV to 0.45x pegged against 1.0SD below 5- year mean (from 0.51x pegged to 0.5SD below mean) to price in the increased earnings downside risks in its glove division given the challenging climate. The 0.45x PBV ascribed is within the 0.3-0.7x PBV targeted range ascribed to developers under our coverage.

Source: Kenanga Research - 1 Mar 2022