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Mah Sing Group

This should be the trough for valuations

Mah Sing reported 3QFY19 core PATMI of RM31.4m (+35.1% QoQ, -31.6% YoY), which brings the 9MFY19 sum to RM91.3m (-37.7% YoY). New sales of RM375m was achieved in 3Q19 (9M19 sales: RM1.1bn) while unbilled sales stood at RM1.7bn (0.9x cover ratio). We lower our forecasts for FY19/20/21 by -10.2%/-18.2°/d-16.3% to take into account slower progressive billings and lower margin product mix. Upgrade to BUY (from Hold) after adjusting our TP to RM0.88 based on an unchanged 60% discount to RNAV of RM2.20. Despite the earnings cut, we now see deep value in the stock as it trades at bottomed valuations, garners dividend yield of at least 5%, and focuses on affordable products which garners strong response.

Below expectations. Mah Sing reported 3QFY19 core PATMI of RM31.4m (+35.1% QoQ, -31.6% YoY), which brings the 9MFY19 sum to RM91.3m (-37.7% YoY), forming 68% and 58% of our and consensus full year forecasts, respectively. Note that we derive our core PATMI forecast after including payments to holders of perpetuals while it may not be the case for consensus figures. We deem this below our expectations largely due to lower than expected progressive billings coupled with a lower margin product mix. No dividends were declared.

QoQ. 3Q19 revenue fell -13.7% to RM415.5m on the back of lower progressive billings. However, core PAMI improved 35.1% due to a better margin product mix and lower payments to holders of perpetual bonds.

YoY/YTD. Revenue fell -17.6%/-19.7% to RM415.5m/RM1347.1m as most of the revenue recognised stemmed from projects in its early stages of development. Consequently, core PATMI dropped -31.6%/-37.7% in tandem with revenue coupled with a lower margin product mix.

New sales of RM375m was achieved in 3Q19, bringing 9M19 total sales to RM1.1bn which represents 73% of FY19 sales target of RM1.5bn. Unbilled sales stood at RM1.7bn, representing a 0.9x cover ratio over FY18 property development revenue.

Outlook. Mah Sing will continue to replenish its landbank within Klang Valley with a focus on development sites with a fast turnaround catered to the affordable segment. We expect FY19 to be a bottomed year as earnings contribution from key projects i.e. M.Vertica and M.Centura are still in its early stages of construction; better contributions should be recognised moving into FY20 and FY21. In addition, management will also be redeeming its Perpetual Sukuk of RM540m in early-2020, thus reducing its yearly payments by c.RM36m.

Forecast. We lower our forecasts for FY19/20/21 by -10.2%/-18.2%/-16.3% to take into account slower progressive billings and lower margin product mix.

Upgrade to BUY, TP: RM0.88. Despite the earnings cut, we upgrade our rating to BUY as we now see deep value in the stock after it retraced -31% from this year’s peak (Feb). With P/B valuation at 0.47x (almost -3SD below 12-year mean), this is now at a historical low; even below its GFC trough of 0.68x (Figure #2). The focus on affordable products has garnered strong response and consistent dividend with a minimum payout ratio of 40% (yield of at least 5%, based on FY19 forecasted earnings) should hopefully serve as a support to share price. Our TP of RM0.88 (from RM0.90) is based on an unchanged 60% discount to RNAV of RM2.20.

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