• Maintain NEUTRAL, new TP of MYR0.65 from MYR0.71, 12% upside with FY22F 5% yield. Although Mah Sing should be on track to hit its MYR2bn sales target by year-end and while its glove-making business is expected to gradually pick up in 2H, re-rating catalysts are lacking – given the bleak macroeconomic outlook. High inflation, disruptions in the supply chain and labour shortage issues may persist over the next 3-6 months. This implies that market sentiment will likely stay negative.

• Expect stronger sales in 2Q22. We recently hosted a virtual meeting with Mah Sing’s Executive Director Dato’ Steven Ng and head of corporate finance and investor relations Khaw Bee Nee. Management expects 2Q22 property sales to be encouraging, in view of a few successful launches ie M Aruna in Rawang, M Senyum in Salak Tinggi, and other M Series projects. The double-storey linked homes in M Senyum saw a 100% take-up rate, and Mah Sing has since opened up Phase 2 for registration. Meanwhile, the interest rate hike in May has not dampened home purchases much, and the conversion rate from booking to contractual sales is still at around 50%.

• Initiatives to manage rising costs. Mah Sing recently launched E-model as part of its initiative to optimise costs. The company will take over the design and construction management of its property projects, so that the bulk procurement of building materials can help to yield cost savings and improve cash flow. It also believes that the piling stage for any of its new high-rise affordable housing projects, which typically requires up to nine months, would lend some flexibility so that the award of building contracts can be phased out, vs locking in at high prices immediately.

• Completion of projects to free up cash flow. More than 4,000 units of properties are slated for vacant possession this year, which should release cash flow of around MYR500m. This would come in handy, as Mah Sing is still on the lookout for land within the Klang Valley for more mid-range housing development projects.

• Expect better volume for glove manufacturing unit. Sales and production volume for the glove manufacturing segment should gradually pick up in 2H. Mah Sing has recently secured two big buyers from the US, after the customers completed their due diligence. Another two big US buyers should start carrying their due diligence soon, and management is optimistic that these potential customers will place their orders after the due diligence work is completed. We are hopeful that the division can turn profitable at the EBIT level in 6-9 months.

• ESG. While the 2% ESG premium to our intrinsic value is unchanged, we revise down our RNAV estimate slightly and roll over our valuations for the manufacturing segments to FY23.

Source: RHB Research - 20 Jun 2022