1QFY22 CNP of RM43.2m came above expectations on stronger-than-expected property margins derived from cost savings upon contract finalisations while sales of RM450m is in line our RM1.7b target. Consequent to the earnings beat, we lift FY22E estimates by 18% on stronger margin assumptions but keep FY23 estimates unchanged as margins should revert back to normalised levels amidst the absence of project finalisations. Maintain MP on unchanged TP of RM0.65 pegged to 0.45x PBV.

Above expectations. 1QFY22 CNP of RM43.2m came above expectations at 34%/32% of our/consensus estimates, respectively. The positive deviation stemmed from stronger-than-expected property development margins which was lifted by cost saving upon account finalisation for completed projects and projects reaching completion within the year. These cost savings mainly come from 5 key projects - M Centura, M Vista, M Vertica, Acacia and Caryn. We understand that the cost saving will continue to support margins throughout the year as further sub-contracts within these developments get finalised. No dividends as expected.

Sales in line. 1QFY22 sales of RM450m (YTD launched RM180m) is in line with our/management’s target of RM1.7b/RM2.0b. Completed unit sales during the quarter was RM19m. For the rest of the year, MAHSING has planned launches worth c.RM2.2b from M Senyum, M Nova, M Astra, Meridin and M Panora. As of March 2022, unbilled sales remain healthy at RM2.0b.

Highlights. QoQ, 1QFY22 CNP of RM43.2m surged 232% in the absence of perpetual security payment worth RM27.1m. Ignoring this distribution for comparison purposes, earnings are actually flat despite a lower revenue (-19%) thanks to stronger OP margin (+6ppt) at its property division as explained above. Meanwhile, we note that its gloves division continued to incur losses which dragged its manufacturing division. YoY, 1QFY21 CNP improved 9% on higher revenue (+5%) upon easing Covid-19 movement restrictions and higher sales of RM450m (vs. 1QFY21 sales of RM400m).

Our view. MAHSING’s commendable cost management, affordable property price-points coupled with quick turnaround strategy for its land banks would continue to buoy earnings despite being primarily in the high-rise residential space which faces a national oversupply issue. Nonetheless, we do not envision strong earnings growth being in such environment exacerbated by external headwinds i.e. elevated raw material costs, absence of HOC, and impending OPR hikes which would erode national affordability. Meanwhile, its glove division would continue to be challenging for the remainder of the year as we emerge out from the pandemic.

Post results, we lift FY22E earnings by 18% on stronger property OP margin. Nonetheless, we maintain FY23E earnings as we opined that property segment’s margins would likely revert back to normalised levels from the absence of the high account finalisations anticipated this year. Consequently, maintain Market Perform and TP of RM0.65 on unchanged 0.45x FY22E PBV pegged against 1.0SD below 5-year mean.

Source: Kenanga Research - 1 Jun 2022