Review

• Excluding the distribution to perpetual sukuk holders amounted to RM36.8mn, Mah Sing reported normalised net profit of RM324.5mn in FY16, which was almost spot on with our forecast (at 99.8%). However, this was below consensus forecast at only 89% of its full-year net profit estimates.

• The board proposed a first and final single-tier dividend of 6.5sen/share, maintaining the same quantum as in the corresponding period of last year.

• FY16 revenue fell 4.9% YoY to RM3.0bn due to lower revenue recognition from two major projects i.e. M City, Jalan Ampang and Icon City, PJ, which are approaching completion in during the period under review. At the pretax level, profits inched up 1.8% YoY to RM482.9mn due to lower selling & marketing and administrative expenses, which were collectively reduced by 15% YoY in FY16. However, normalised net profit slipped 4.2% YoY, largely dragged by distribution to perpetual sukuk holders.

• QoQ, Mah Sing’s 4Q16 normalized net profit advanced 16.5% to RM85.6mn despite a 1.5% decline in revenue. Sequential profit grew at a faster pace as the immediate preceding quarter results were impacted by the distribution to perpetual sukuk holders

• Mah Sing’s 4Q16 new property sales plunged 40% QoQ and 46% YoY to RM380mn. With no meaningful new launches scheduled in 4Q16, we deem the slow sales performance was within expectations. All in, this brought the 2016 full-year sales to RM1.78bn (-23% YoY), tracking management’s internal sales target. Unbilled sales eased to RM3.7bn (1.3x our projected FY17 property revenue) from RM4.0bn a quarter ago

Outlook

• Mah Sing is targeting new sales of RM1.8bn this year, underpinned by new projects worth RM1.9bn and other existing projects that carry a combined value of about RM1.7bn. New projects to be introduced in 2017 include M Residence 3 @ Rawang, and Southbay City Penang.

• Management intends to continuously match its products to market demand with focus on rolling out more mid to high-end products, catering for first time home-buyers as well as upgraders. For 2017, 73% of the group residential sales target points at RM700k and below per unit.

• The group’s balance sheet remain solid, with low net gearing at 0.02x as at 31 Dec 2016. We believe the group is in a strong position to expand its landbank as it has a high cash pile of RM924mn. This will come in handy should any land acquisition opportunities arise.

Impact

• We tweak our FY17-18 earnings marginally by 0.1% after factoring in the actual FY16 results.

Valuation

• We maintain our Hold recommendation with an unchanged target price of RM1.60/share, based on 11x CY17 EPS.

Source: TA Research - 1 Mar 2017