INVESTMENT HIGHLIGHTS

• 1QFY18 earnings below expectations

• Klang Valley projects the key earnings contributor

• Strong property sales of RM470m in 1QFY18

• Earnings forecast reduced

• Maintain BUY with unchanged TP of RM1.60

1QFY18 earnings below expectations. Mah Sing Group Berhad (Mah Sing) 1QFY18 core net earnings of RM65m came in below expectations, making up 16% and 19% of our and consensus full year estimates. The negative deviation could be attributed to the slower-than-expected progress billing in 1QFY18.

Klang Valley projects the key earnings contributor. Mah Sing 1QFY18 core net income dropped 28%yoy to RM65m, in line with lower topline (- 19%yoy). The lower revenue was mainly due to slower progress billing as more Mah Sing’s projects that are focusing on affordable products are at their initial stage of construction. Projects in Greater KL and Klang Valley remains the key earnings contributor to Mah Sing while Mah Sing will remain focused in Greater KL. Meanwhile, unbilled sales decreased marginally to RM2.6b from RM2.7b in 4QFY17, providing 1 year of earnings visibility.

Strong property sales of RM470m in 1QFY18. Mah Sing registered new property sales of RM470m in 1QFY18, higher than new sales of RM410m in 1QFY17. New sales in 1QFY18 makes up 26% of management and our sales target of RM1.8b. 90% of the total new sales were contributed by projects in greater KL while the remaining 10% was contributed by projects in Johor, Penang and Sabah. Looking forward, management is confident to exceed its new sales target of RM1.8b as “Desire” campaign that was launched recently is expected to drive sales of inventory. Meanwhile, key upcoming launches in 2018 include M Centura, M Vertica, Sensa Residence and Cerrado Residential Suites in Southville City.

Maintain BUY with a revised TP of RM1.60. We revise downwards our earnings forecast for FY18 by 19% to reflect the lower progress billing. We revise our TP for Mah Sing to RM1.60 from RM1.68 as we update our RNAV figures and widen RNAV discount from 20% to 30% in view of the slightly weaker earnings outlook. Nevertheless, we maintain our BUY call on Mah Sing due to its attractive valuation (trading at a steep 24% discount to NTA) and decent dividend yield of 5.9%.

Source: MIDF Research - 1 Jun 2018