KEY INVESTMENT HIGHLIGHTS

• Virtual meeting with Mah Sing
• Sales target of RM1.1b maintained for FY20
• Glove manufacturing plant on track for completion by April 2021
• Positive earnings outlook for property and gloves manufacturing divisions
• Maintain BUY with an unchanged TP of RM1.07

Virtual meeting with Mah Sing. We had a virtual meeting with Mah Sing Group Berhad (Mah Sing) and came away feeling reaffirmed on positive prospect of its property division and gloves manufacturing division. Key takeaways from the meeting as below:

Sales target of RM1.1b maintained for FY20. Mah Sing is maintaining its new property sales target of RM1.1b for FY20 and management is confident that sales will be able to meet its target. Note that Mah Sing chalked up total new sales of RM418m in 1HFY20 and expect new sales to pick up in 2HFY20. New sales in 2HFY20 is expected to be supported by new sales from M Luna in Kepong and M Adora in Wangsa Melawati as well as new project launches such as Carya in M Aruna, Rawang and remaining blocks of M Vertica in Cheras. Nevertheless, we gather that loan approval process remains stringent which may partly drag the conversion of booking into sales.

Gloves manufacturing plant on track for completion by April 2021. Mah Sing ventured into gloves manufacturing recently in a move to diversify its earnings stream. We gather that its gloves manufacturing plant in Kapar, Selangor is on track for completion by April whereby two lines of production line will commence operation. Note that six production lines will commence production in 2Q2021 and another six production lines will commence production in 3Q2021, giving total production capacity of 3.68b pieces per annum. We understand that Mah Sing’s focus is to produce nitrile gloves and has secured some raw material supply despite shortage of nitrile-butadiene rubber (NBR). On another note, we gather that Mah Sing’s registration with US Food and Drug Administration (FDA) has been approved recently and certificate will be issued within the next few days. Meanwhile, Mah Sing is also in the midst of getting CE Marking Certification for gloves export to European countries.

Positive earnings outlook for property and gloves manufacturing division. Post meeting, we maintain our earnings forecast as property sales outlook for Mah Sing is steady while gloves manufacturing plant is on track to start production in April 20221. We expect positive earnings outlook for Mah Sing in FY21, mainly driven by earnings recovery of property division and earnings contribution from gloves manufacturing. Earnings of property division are expected to recover in FY21 from adverse impact of Movement Control Order in Malaysia. Meanwhile, earnings contribution from gloves manufacturing is expected to be significant in FY21 as Mah Sing targets to sell its gloves at spot order price which is higher than contractual price.

Maintain BUY with an unchanged TP of RM1.07. We maintain our Buy call on Mah Sing with an unchanged target price of RM1.07, based on sum-of-parts valuation. We have ascribed 68% discount to RNAV for property division and PE ratio of 13x for gloves manufacturing division. We continue to view the venture into gloves manufacturing as a strong catalyst as it will boost Mah Sing’s earnings significantly going forward. Besides, property sales outlook for Mah Sing is stable as its sales are on track to meet new sales target. Hence, we maintain our BUY call on Mah Sing.

Source: MIDF Research - 20 Nov 2020