• Maintain BUY, with new MYR0.75 TP from MYR0.77, 26% upside and 6% yield. Mah Sing’s 1Q23 results were within expectations. Losses for the manufacturing division narrowed due to effective cost management and better plant utilisation. 1Q23 sales achieved MYR600.6m – on track to meet management’s target of MYR2.2bn by year end. The lower TP reflects our new ESG score for the company as a result of the adjustment in ESG weightage.

• 1Q23 results. The QoQ drop in revenue was primarily due to the disposal of land in Penang Georgetown worth MYR66.3m in 4Q22. Stripping off the land sale, revenue grew 6.4%. Revenue for the manufacturing segment stayed largely unchanged from last quarter, but operating losses narrowed quite significantly. 1Q23 LBIT was only at MYR3.68m compared with MYR9.05m in 4Q22 and MYR7.77m in 1Q22. Management attributed the improvement to its effective cost management (which resulted in lower wastage and rejection rate) that boosted operating efficiency, as well as better plant utilisation. Net gearing is now at 0.20x from 0.22x in 4Q22.

• Sales momentum remained healthy. New property sales reached MYR600.6m vs MYR480m in 4Q22. Key contributors included M Astra (MYR189m), Meridin East (MYR89m) and M Senyum (MYR60m). The remaining Towers C, D, and E of M Vertica were handed over in April. In the coming quarters, M Oscar, phases of Meridin East and M Aruna will be completed progressively.

• Expect losses in the manufacturing division to narrow further. We believe the manufacturing division will post better results going forward. Gloves ASP improved to around USD20-21/1k pieces, while raw material prices (NBR) have eased to around USD860/tonne (from almost USD900/tonne in March/April). At the same time, gas prices have also been revised down by about 25% from June. Assuming sales volume continues to grow, we expect the gloves manufacturing segment to reach its breakeven level sooner.

• Forecasts. We keep our FY23F-25F earnings. Unbilled sales increased to MYR2.26bn vs MYR2.18bn as at 4Q22.

• Lower TP. Our SOP-based TP includes a 0% ESG discount/premium given our ESG score of 3.00 is in line with the country median.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

Source: RHB Research - 30 May 2023