Review

• Mah Sing’s 1H23 core net profit of RM100.5mn came in within expectations, accounting for 53% and 52% of ours and consensus’ full-year forecasts, respectively.

• YoY, 1H23 revenue and core net profit increased 32% and 58% to RM1.3bn and RM100.5mn, respectively, driven by higher property sales and progressive revenue recognition from on-going projects. The manufacturing segment exhibited a 13% reduction in operating loss, narrowing it to RM7.8mn from RM9.0mn in 1H22. This improvement was driven by ongoing efforts to enhance glove plant utilisation and cost management, resulting in improved productivity and operational efficiency. Furthermore, the stronger core net profit can also be attributed to the absence of distribution to perpetual securities holders, stemming from the full redemption of RM650mn perpetual securities on the initial call date of April 4, 2022.

• 2Q23 demonstrated a relatively steady performance, with a marginal sequential revenue increase of 0.1% to RM644.2mn and a core net profit increase of 0.8% to RM50.5mn, as compared to the first quarter of 2023.

• In 2Q23, Mah Sing achieved consistent new sales of RM600mn. This brought the YTD new sales for 1H23 to RM1.2bn, indicating an 18% YoY increase. M Astra, an affordable high-rise project in Setapak, was the largest contributor to sales in 1H23, accounting for 29% of total sales. Additionally, unbilled sales increased marginally to RM2.34bn from RM2.26bn in the previous quarter, providing the group with over twelve months of earnings visibility or 1.3 times the FY22 property revenue.

Impact

• Maintain earnings forecasts.

Outlook

• Mah Sing reported impressive take-up rates varying from 87% to 99% for their new launches in 1H23, indicating the robust demand for affordable housing in urban areas. Having achieved 55% of its FY23 sales target in the 1H, Mah Sing appears on course to meet the RM2.2bn sales target. Moving forward, sales are expected to be supported by the conversion of bookings (valued at RM494mn as of 24 Aug) and new projects worth approximately RM1.6bn.

• Despite Mah Sing's RM639.3mn acquisition spree this year, we do not anticipate that the company will need to raise additional equity for landbanking. This is owing to its solid balance sheet, which as of June 23 saw a record-low net gearing ratio of 0.12x and a cash balance of RM930mn. To date, Mah Sing has acquired 589 acres of land with a potential GDV of RM5.0bn,

• As far as the glove manufacturing business is concerned, we anticipate that Mah Sing's glove manufacturing division will continue to operate at a loss this year due to the low average selling price and dismal demand outlook. Management has indicated their focus on implementing additional cost reduction measures to improve the division's performance.

Valuation

• The property sector is experiencing renewed investor optimism due to a number of factors, including the anticipated end of the BNM's OPR hike cycle, the potential land value enhancement from major infrastructure projects (HSR, RTS, and MRT3) as well as the establishment of special financial/economic zones, and the possibility of homeownership-friendly policies. This upbeat outlook is anticipated to continue, which could result in ongoing gains for property stocks.

• In light of this optimistic environment, we raise our target P/Bk multiple to 0.6x from 0.45x and arrive at a new TP of RM0.95/share (previously RM0.71/share). Our target P/Bk multiple of 0.6x is marginally higher than the stock’s 5-year average P/Bk of 0.57x. We maintain our Buy recommendation on Mah Sing.

Source: TA Research - 29 Aug 2023