Both MAHSING’s 1HFY22 CNP and property sales met expectations. We expect a stronger 2H on cost writebacks and lower finance expense (following the redemption of high cost perpetual securities in 2Q), partially offset by potential deceleration in sales momentum on rising interest rates. Meanwhile, losses at its glove division should narrow further on better sales volumes, tighter cost control and as ASP bottom out. We maintain our forecasts, TP of RM0.60 based on a 65% discount to RNAV and MARKET PERFORM call. Within expectations. 1HFY22 CNP of RM61m (after adjusting for RM12.7m insurance claims, RM6.1m PPE write-off and RM3.8m inventories written down) came in at only 41% and 42% of our full-year forecast and full-year consensus estimates, respectively. However, we consider the results within expectation as we expect a stronger 2H on the back of: (i) better property development margins arising from cost write-backs upon account finalisation for completed projects, and (ii) lower interest cost following the redemption of its perpetual securities amounting to RM650m (at 6.9% interest rate) in 2Q. 1HFY22 CNP improved 15% in tandem with the rise in revenue (+14%) attributable to: (i) better progress billings as construction activities returned to normalcy from a pandemic-stricken period a year ago, and (ii) higher unbilled sales of RM1.9b at the start of FY22 (vs RM1.6b a year ago). Meanwhile, its manufacturing segment (that produces plastic pallets, boxes and furniture, and gloves) saw narrowing operating losses vs. the last two quarters thanks to reducing losses from its glove division.

Outlook. 1HFY22 sales of RM1.0b (partially driven by RM397m worth of new launches) accounted for 59% of our full-year assumption of RM1.7b (and the company’s internal target of RM2b). Nonetheless, we maintain our assumption as we anticipate its sales momentum to decelerate on rising interest rates. MAHSING has earmarked RM1.1b worth of launches for 2H namely from M Astra, M Nova, M Senyum, M Panora and Meridin East. As at end-June 2022, its unbilled sales stood at a healthy RM2.2b. Meanwhile, losses at its glove division should narrow further in 2H (but we believe it will not turn profitable anytime soon) on better sales volumes (including to MNC clients), tighter cost control and as ASP bottom out.

Forecasts. We maintain our forecasts and TP of RM0.60 based ona 65% discount to RNAV, at the upper-end of the sector’s average of 60-65% to reflect its on-going projects that are skewed towards high-rise products (with a persistent overhang) and the affordable segment (that is more sensitive to the rising interest rates). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5). Maintain MARKET PERFORM. Risks to our call include: (i) persistent overhang in the high-rise segment, (ii) widening losses at its glove division due to oversupply, and (iii) sustained elevated inflation and rising interest rates, hurting affordability.

Source: Kenanga Research - 30 Aug 2022