MAHSING’s FY22 earnings and sales met expectations. For FY23, it has set a sales target of RM2.2b compared to RM2.1b achieved in FY22. Although its glove manufacturing business is likely to remain in the red in FY23, losses are expected to narrow. We maintain our FY23F net profit, raise our TP by 17% to RM0.70 (from RM0.60), and reiterate our OUTPERFORM call.

Within expectations. FY22 core net profit of RM157m (after adjusting for RM24m insurance claims, RM6m PPE write-off, RM17m inventories/inventory properties written down) met expectations. The full-year dividend of 3.0 sen is also in-line with our forecast.

FY22 earnings improved 48% in tandem with the rise in revenue (+32%) thanks to better property progress billings as construction activities returned to normalcy from a pandemic-stricken period a year ago. Despite the stark improvement in its property division, its manufacturing segment’s operating loss almost tripled to RM23.1m due to its glove plant’s underutilised capacity, weighed down by the global oversupply post pandemic.

MAHSING booked in RM2.12b sales (backed by RM1.2b worth of new launches) in FY22 which met our RM2.2b forecast and its internal target of RM2.0b. For FY23, MAHSING has earmarked launches with a sales target of RM2.2b (consistent with ours). As at end-2022, its unbilled sales stood at a healthy RM2.2b.

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

Forecasts. Maintain FY23F earnings and introduce FY24F earnings backed by sales target of RM2.2b.

Given MAHSING’s speedy monetisation of its land banks, we reduce the development duration assumption in our RNAV valuation and lift our TP to RM0.70 (from RM0.60), based on an unchanged 65% discount to RNAV, which is at the upper-end of the sector’s average of 60%-65%. This is to reflect its high exposure to high-rises which are currently facing 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. Maintain OUTPERFORM.

We like MAHSING for: (i) its commendable cash management with net gearing being reduced from a peak of 0.37x to 0.22x as of FY22, (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 to minimise 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 persistent oversupply, and (iii) sustained elevated inflation and rising interest rates, hurting affordability.

Source: Kenanga Research - 1 Mar 2023