Review

• Mah Sing’s FY23 core net profit of RM215.3mn exceeded expectations, accounting for 113% and 111% of our and consensus’ full-year forecasts, respectively. The positive variance was largely due to higher-than-expected property development margins. Note that FY23 revenue was in line at 104% of our full-year forecasts.

• The board is recommending a final dividend of 4.0sen/share for FY23, compared to 3.0/share in FY22. This reflects a payout ratio of 45%, indicating the 18th consecutive year of distributing a minimum of 40% of net profit as dividends. Furthermore, the proposed FY23 dividend also exceeded our initial projection of 3.5sen/share.

• YoY, FY23 revenue and core net profit increased 12% and 32% to RM2.6bn and RM215.3mn, respectively, driven by higher property sales and progressive revenue recognition from on-going projects. The manufacturing segment exhibited a 78% reduction in operating loss, narrowing it to RM5.0mn from RM23.1mn in FY22. This improvement was driven by ongoing efforts to improve glove plant utilisation and cost management, resulting in increased 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.

• QoQ, 4Q23 net profit surged 29% to RM64.7mn, largely driven by higher sales of completed and nearly completed products. Additionally, 4Q23 EBIT margin improved 3.2%-pts QoQ to 17%, due to the realisation of cost savings upon finalisation of certain construction contracts for completed phases.

• Mah Sing raked in RM453mn new sales in 4Q23 (+6% YoY, -24% QoQ), bringing FY23 sales to RM2.26bn (+9% YoY), aligning with both the management’s sales target and our projected sales of RM2.2bn. M Astra, an affordable high-rise project in Setapak, was the largest contributor to sales in FY23, accounting for 23% of total sales. Latest unbilled sales eased slightly to RM2.33bn from RM2.42bn a quarter ago, providing the group with over twelve months of earnings visibility or 1.1 times the FY23 property revenue.

Impact

• We raise our FY24-25 earnings forecasts by 1-3% after factoring in the actual FY23 results and adjusting progress billings and margins for its ongoing projects. We introduce FY26 net profit forecast of RM244.3mn, representing a steady growth of 6.3%.

Outlook

• Mah Sing has set a new sales target of at least RM2.5bn for FY24, representing an 11% YoY increase. This target is supported by upcoming launches valued at RM2.8bn. The management expresses confidence in achieving this target, citing robust demand for affordable homes in urban locations. We gather that the group's recent launches have consistently shown strong market acceptance, maintaining an impressive uptake rate of over 90% throughout the FY23.

• Mah Sing's balance sheet remains solid, which as of end Dec-23 saw a low net gearing ratio of 0.08x and a cash balance of RM981mn. Despite acquiring six new lands since 2023, with an anticipated GDV of RM6.2bn, Mah Sing is actively seeking opportunities to further enhance its landbank in key areas such as Klang Valley, Johor, and Penang. This strategic approach aims to expand the company's residential and industrial development portfolios.

• As far as the glove manufacturing business is concerned, management will remain focused on implementing cost reduction measures to improve the division's performance.

Valuation

• After factoring in the revised earnings and rolling forward our base year valuation to CY25, we arrive at a new target price of RM1.24 (previously RM1.19), based on a target P/Bk of 0.75x. Reiterate Buy.

Source: TA Research - 28 Feb 2024