INVESTMENT HIGHLIGHTS

• 9MFY18 earnings slightly below our expectation

• New projects at initial stage of construction

• 9MFY18 new sales at RM1.2b

• New property sales and earnings forecast reduced

• Downgrade to Neutral with a revised TP of RM1.08

9MFY18 earnings slightly below our expectation. Mah Sing Group Berhad (Mah Sing) 9MFY18 core net earnings of RM204.9m came in slightly below our expectation, making up 69% of our full year forecast as progress billing came in slightly weaker than expected. Nevertheless, 9MFY18 core net income is within consensus expectation as it makes up 76% of consensus estimates.

New projects at initial stage of construction. On sequential basis, 3QFY18 core net income fell 17%qoq to RM63.1m, in line with lower topline (-14%qoq). The lower earnings in 3QFY18 was due to low progress billing, higher marketing expenses and higher administrative expenses. On yearly basis, 3QFY18 core net income eased 25.4%yoy to RM63.1m, bringing cumulative 9MFY18 core net income to RM204.9m (-22.8%yoy). The decline in earnings was due to low contribution from new projects in Klang Valley as the projects were still at initial stages of construction. Meanwhile, unbilled sales decreased marginally to RM2.51b in 3QFY18 from RM2.65b in 2QFY18, providing less than one year of earnings visibility.

9MFY18 new sales at RM1.2b. Mah Sing recorded new property sales of RM275m in 3QFY18, lower than new sales of RM472m in 2QFY18 as buyers adopted wait-and-see stance prior to Budget 2019 announcement. That brought cumulative new sales to RM1.2b in 9MFY18. The new sales in 9MFY18 is slightly below expectations as it makes up 67% of our and management new sales target of RM1.8b. As such, we are revising our sales target to RM1.6b for FY18. Looking ahead, new property sales in 4QFY18 are expected to be stronger than 3QFY18 as new sales momentum is expected to support by its Home Ownership Campaign (campaign period: 15th November 2018 – 31st December 2018) whereby property buyers could start to enjoy the Budget 2019 stamp duty incentives. Meanwhile, upcoming launches for the remainder of the year include M Vertica serviced apartments and 2-storey link homes in Meridin East and M Aruna.

Source: MIDF Research - 19 Nov 2018