• Maintain NEUTRAL, with lower SOP-derived MYR0.71 TP from MYR0.78, 11% upside. 1Q22 results were broadly in line. While the gloves manufacturing segment continued to incur losses, the property division has largely improved given smoother construction progress and better property sales. Mah Sing raked in MYR450m new sales in 1Q22, and is on track to hit its MYR2bn target by year end. Our new TP reflects our latest earnings adjustment for the gloves division in view of weaker ASPs.

• 1Q22 results. 1Q22 revenue fell QoQ, given the higher number of projects being completed in 4Q21. However, EBIT margin for the property development division was higher as a result of finalisation of costs for certain construction contracts (such as M Centura, M Vista, M Vertica etc). Meanwhile, the manufacturing segment recorded an operating loss of MYR7.8m, a slight improvement from an operating loss of MYR8.1m in the previous quarter, as the gloves manufacturing plant was still running at low utilisation, and hence, lower absorption of overhead costs at the initial stage of operations.

• Decent sales in 1Q22. New property sales reached MYR450m vs MYR320m in 4Q21. Key projects that contributed to sales include M Luna in Kepong (MYR65.5m), M Centura/M Arisa in Sentul (MYR56.9m), M Adora in Melawati (MYR52.4m) and Meridin East (MYR55.4m).

• Expect higher sales in 2Q22. Mah Sing should be on track to hit its MYR2bn sales target by year end, and we expect sales to be better in 2Q22. In May, the company rolled out its maiden M Senyum project in Salak Tinggi, comprising 262 units of double-storey terrace homes. The project received 100% take-up, and Mah Sing has just opened up Phase 2 for registration. Other existing mid-range high-rise projects also saw encouraging take-up ranging 80-100%. Upcoming launches include M Astra in Setapak and M Nova in Kepong.

• Forecasts. We revise down our FY22F-24F earnings marginally by 3-5% to reflect lower ASP assumptions for gloves. Utilisation rate will likely improve gradually, and we expect the division to turn profitable in late 2022. Unbilled sales remained steady at MYR2bn vs MYR1.9bn as at 4Q21.

• Lower TP. Our TP is based on SOP – with a 75% discount to RNAV for the property division, 8x P/E for the plastic manufacturing segment, and 5x P/E for the gloves manufacturing segment, (from 8x to be in line with the sector de-rating). Our TP also includes a 2% ESG premium given our ESG score of 3.10, using our in-house methodology.

Source: RHB Research - 1 Jun 2022