Review

• After deducting the distribution to perpetual sukuk and securities holders amounted to RM45.4mn, Mah Sing reported core net profit of RM60.0mn in 1H19. Results came in below expectations, accounting for 28% and 25% of ours and consensus’ full-year forecast respectively. The variance was largely due to lower-than expected progress billings and margin.

• 1H19 revenue decreased 21% to RM931.6mn given that most of the group’s new launches are at their initial stages of construction. However, 1H19 core net profit declined 40% YoY to RM60.0mn, largely due to 1) lower EBIT margin (-0.5%-pts YoY to 15.5%) and 2) higher distribution of profit to perpetual sukuk and securities holders (+12% YoY).

• Sequentially, 2Q19 core net profit decreased 37% to RM23.2mn despite revenue grew 7% QoQ. Lower sequential profit was largely impacted by 1) higher distribution of profit to perpetual sukuk and securities holders (+48% QoQ) and 2) lower EBIT margin (-2.2%-pts to 14.4%).

• Mah Sing recorded new property sales of RM460mn in 2Q19 (+53% QoQ, -3% YoY), bringing the 1H19 sales to RM761mn (-19% YoY). Bulk of the 1H19 sales were derived from M Centura, Sentul and M Vertica, Cheras, which recorded new sales of RM103mn and RM258mn (collectively accounted for 47% of 1H19 sales). Unbilled sales remained stable at RM1.6bn.

Impact

• While our FY19-21 sales assumptions are largely unchanged at RM1.5bnRM1.7bn, our FY19-21 earnings are revised by lower 18-35% after incorporating the followings; - Slow down revenue recognition as our new sales assumptions now comprise mainly newly launched projects. - Cut blended EBIT margin by 0.5%-pts to 0.8%-pts to 15.9%-16.0%%.

• We also cut FY19/20/21 DPS projections to 4sen/4sen/4.5sen from 5.0sen p.a. previously.

Outlook

• With 1H sales accounted for 51% of Mah Sing’s 2019 sales target of RM1.5bn, we believe the group is on track to achieve its sales target. 73% of the new launches RM2.2bn new launches for 2019 are from Klang Valley, such as new serviced apartment blocks in 1) M Vertica, Cheras (priced from RM480k/unit), 2) M Arisa, Sentul (priced from RM350k/unit), 3) Sensory Serviced Residence, Southville City (priced from RM344k/unit) and 4) M Oscar, Happy Garden (priced from RM428k/unit) and 5) 2-storey link homes in M Aruna, Rawang (priced from RM500k/unit). For commercial products, the group plans to roll out new office blocks in Onyx Icon City, PJ.

• Going forward, 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 2019, 81% of the group residential sales target points at RM700k and below per unit. In line with the group’s focus to acquire prime land in strategic location especially in the Klang Valley, the group has acquired 3 sites with a combine GDV potential of RM1.6bn YTD.

Valuation

• Post earnings revision, we lower our target price to RM0.90/share (previous RM1.07/share), based on a lower target average blended CY20 PE/PB of 9x/0.8x (previous CY20 PE/PB of 10x/0.8x). We downgrade our target multiple to reflect the overall weak market sentiment on property stocks. With a total potential return of 8.2%, we downgrade Mah Sing to Hold.

Source: TA Research - 3 Sept 2019