Review

• After deducting the distribution to perpetual sukuk and securities holders amounted to RM64.0mn, Mah Sing reported core net profit of RM91.4mn in 9M19. Results came in below expectations, accounting for 67% and 58% of ours and consensus’ full-year forecast respectively. The variance was largely due to lower-than expected progress billings and higher-thanexpected effective tax rate.

• 9M19 revenue decreased 20% to RM1.3bn given that most of the group’s new launches are at their initial stages of construction. 9M19 core net profit declined 38% YoY to RM91.4mn, largely due to 1) lower EBIT margin (- 0.3%-pts YoY to 15.8%), 2) higher distribution of profit to perpetual sukuk and securities holders (+9% YoY) and 3) higher effective tax rate.

• Sequentially, 3Q19 core net profit surged 35% to RM31.4mn despite revenue declined 14% QoQ. Higher sequential profit was largely driven by 1) lower distribution of profit to perpetual sukuk and securities holders (- 31% QoQ) and 2) higher EBIT margin (+1.9%-pts to 16.4%).

• Mah Sing recorded new property sales of RM375mn in 3Q19 (-18% QoQ, +36% YoY), bringing the 9M19 sales to RM1.1bn (-7% YoY). Bulk of the 9M19 sales were derived from M Centura, Sentul, M Vertica, Cheras, and Meridin East, Johor which recorded new sales of RM141mn, RM390mn and RM116mn respectively (collectively accounted for 57% of 9M19 sales). Unbilled sales remained stable at RM1.7bn.

Impact

• While our FY19-21 sales assumptions are largely unchanged at RM1.5bnRM1.7bn, we cut our FY19 earnings by 12% but raise FY20 and FY21 earnings 3.4% and 2.0% respectively after incorporating the followings; - Slow down revenue recognition in FY19 as our new sales assumptions now comprise mainly newly launched projects; - Increase effective tax rates assumptions to 25% from 24%.

Outlook

• With 9M sales accounted for 76% of Mah Sing’s 2019 sales target of RM1.5bn, we believe the group is on track to achieve its sales target. 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. Affordable products in the Klang Valley were well-received, registering strong take up rates of >80% (M Vertica ,83% take up for first 3 blocks and M Centura, 90% take up).

• In terms of land banking strategy, the group prefers to acquire prime land in strategic location which is ready for immediate development. YTD, the group has acquired 3 sites with a combine GDV potential of RM1.6bn. For instance, M Oscar (off Kuchai Lama) was successfully launched in October, within seven months from the land acquisition. Meanwhile, the registration of interest for M Luna (Kepong) and M Adora (Wangsa Melawati) has also commenced. Both M Luna and M Adora are targeted for launch in 1Q20.

Valuation

• Our TP is largely unchanged at RM0.90/share, based on target average blended CY20 PE/PB of 9x/0.8x. Maintain Buy. Looking beyond the weaker performance in FY17-19f, we expect FY20-21 earnings to pick up once the construction of new projects such as M Vertica and M Centura reaches significant billing stage.

Source: TA Research - 28 Nov 2019