KEY INVESTMENT HIGHLIGHTS

• 1HFY20 earnings below expectations

• Earnings hit by delayed construction progress

• New sales target revised to RM1.1b

• Earnings estimates revised downwards

• Maintain BUY with an unchanged TP of RM0.82

1HFY20 earnings below expectations. Mah Sing Group Berhad (Mah Sing) 1HFY20 core net earnings of RM14.5m came in below our and consensus expectations, making up 23% and 15% of our and consensus full year estimates respectively. The negative deviation could be attributed to the weaker-than-expected 2QFY20 earnings as a result of delayed construction progress during Movement Control Order (MCO). Note that we have excluded impairment losses and distribution paid to perpetual sukuk and securities in our core net income calculations.

Earnings hit by delayed construction progress. 2QFY20 core net profit were lower at RM1.9m (-91.5%yoy) mainly due to halt of construction activities during MCO. That led cumulative earnings in 1HFY20 at RM14.5m (-75.6%yoy). The lower earnings were owing to delayed construction progress during MCO and slow sales conversions as a result of delays in loan approvals. Note that earnings in 1HFY20 were mainly contributed by its key projects in Klang Valley namely M Vertica in Cheras, M Centure in Sentul and Southville City in KL South. Meanwhile, unbilled sales were flattish at RM1.64b in 2QFY20 against unbilled sales of RM1.69b in 1QFY20.

New sales target revised to RM1.1b. Mah Sing recorded new property sales of RM171.6m in 2QFY20, lower than new sales of RM247m in 1QFY20 as new sales were slow during MCO. That brought cumulative new sales in 1HFY20 to RM418.6m which makes up only 26% of management new sales target of RM1.6b. Meanwhile, management is revising its new sales target to RM1.1b in view of a longer period required to convert existing bookings to sales due to more stringent loan approval process.

Maintain BUY with an unchanged TP of RM0.82. We revise our FY20/21F earnings forecast by -38.6%/-23.2% to factor in the lower progress billing. New sales outlook for FY21 is expected to be better due to strong booking in pipeline of RM1.6b. Hence, we maintain our Buy call on Mah Sing with unchanged TP of RM0.82, based on 63% discount to RNAV. Valuation of Mah Sing is attractive, trading at 46% discount to its latest NTA of RM1.40 per share.

Source: MIDF Research - 1 Sept 2020