MAHSING’s 9MFY22 earnings met expectations. Its property sales were strong at RM1.7b, exceeding both our expectation and its own internal target. While keeping our FY22F earnings, we raise FY23F’s by 14% as we lift our annual sales assumption to RM2.2b for both FY22 and FY23 (from RM1.7b). We maintain our TP of RM0.60 but upgrade our call to OUTPERFORM from MARKET PERFORM as we see value in MAHSING after the recent weakness in its share price.

Within expectations. 9MFY22 core net profit of RM105m (after adjusting for RM24m insurance claims, RM6m PPE write-off and RM12m inventories written down) came in within expectations at 70% and 73% of our full-year forecast and the full-year consensus estimate, respectively.

9MFY22 earnings improved 13% in tandem with the rise in revenue (+35%) on: (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).

Outlook. Despite the challenging market condition especially with rising interest rates, MAHSING managed to book in RM1.7b sales (backed by RM867m worth of new launches) in 9MFY22. This already matched our full-year assumption of RM1.7b and is on track to surpass its internal target of RM2.0b. As such, we raise our FY22F sales assumption by 30% to RM2.2b. For 4QFY22F, MAHSING has earmarked c.RM0.4b worth of launches namely from M Astra and link homes at Meridin East. As at end-Sept 2022, its unbilled sales stood at a healthy RM2.3b.

Separately, while its glove division would likely remain loss-making going into FY23, we foresee the losses to narrow on better sales volumes from new multinational clients, tighter cost controls, lower raw material prices and the bottoming of selling prices.

Forecasts. While keeping our FY22F earnings, we raise FY23F’s by 14% on higher annual sales assumption of RM2.2b for both FY22 and FY23 (from RM1.7b).

We maintain our TP of RM0.60 based on a 65% discount to RNAV, at the upper-end of the sector’s average of 60-65% to reflect its on-going projects which are skewed towards high-rise products faced with a national overhang issue. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5). We see value in MAHSING after the recent weakness in its share price. Upgrade to OUTPERFORM from MARKET PERFORM.

We like MAHSING for: (i) its commendable cash management with net gearing being reduced from a peak of 0.37x to 0.27x as of 3QFY22, (ii) appealing lifestyle-focused products at affordable prices providing ease of entry for first time home buyers, and (iii) quick turnaround strategy for its land banks which helps save on land carrying costs.

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 - 1 Dec 2022