Mah Sing Group Bhd
(Nov 28, 68.5 sen)
Maintain buy with an unchanged target price of 90 sen: After deducting the distribution to perpetual sukuk and securities holders amounting to RM64 million, Mah Sing Group Bhd reported a core net profit (CNP) of RM91.4 million for the cumulative nine months ended Sept 30 of financial year 2019 (9MFY19). The results came in below expectations, accounting for 67% and 58% of our and the consensus’ full-year forecasts respectively. The variance was largely due to lower-than expected progress billings and higher-than expected effective tax rates.

Its revenue decreased 20% to RM1.3 billion for 9MFY19 given that most of the group’s new launches were in their initial stages of construction. Its CNP declined by 38% year-on-year (y-o-y) to RM91.4 million for 9MFY19, largely due to i) a lower earnings before interest and taxes (Ebit) margin (-0.3 percentage points [ppts] y-o-y to 15.8%); ii) higher distribution of profit to perpetual sukuk and securities holders (+9% y-o-y); and iii) higher effective tax rates.

Sequentially, its CNP surged 35% to RM31.4 million for the third quarter of FY19 (3QFY19) even as its revenue declined 14% quarter-on-quarter (q-o-q). The higher sequential profit was largely driven by: i) lower distribution of profit to perpetual sukuk and securities holders (-31% q-o-q); and ii) a higher Ebit margin (+1.9ppts to 16.4%).

Mah Sing recorded new property sales of RM375 million in 3QFY19 (-18% q-o-q; +36% y-o-y), bringing its sales in 9MFY19 to RM1.1 billion (-7% y-o-y). The bulk of sales in 9MFY19 were derived from M Centura, Sentul, M Vertica, Cheras, and Meridin East, Johor which recorded new sales of RM141 million, RM390 million and RM116 million respectively, collectively accounting for 57% of sales in 9MFY19. Its unbilled sales remained stable at RM1.7 billion.

While our FY19-FY21 sales assumptions are largely unchanged at RM1.5 billion-RM1.7 billion, we cut our FY19 earnings forecast by 12% but raise our FY20 and FY21 earnings forecasts by 3.4% and 2% respectively after incorporating the following: i) a slowdown in revenue recognition for FY19 as our new sales assumption now comprises mainly newly launched projects; and ii) an increase in our effective tax rate assumption to 25% from 24%.

With nine-month sales accounting for 76% of Mah Sing’s sales target of RM1.5 billion in FY19, we believe the group is on track to achieve the sales target. Going forward, the management intends to continuously match its products to market demand with a focus on rolling out more mid- to high-end products, catering for first-time homebuyers as well as upgraders.

In terms of landbanking strategy, the group prefers to acquire prime land in strategic locations ready for immediate development. Year to date, the group has acquired three sites with a combined gross domestic product potential of RM1.6 billion. M Oscar (off Kuchai Lama) was successfully launched in October — within seven months after the group acquired the land. Meanwhile, registration of interest in M Luna, Kepong, and M Adora, Wangsa Melawati has also commenced. Both M Luna and M Adora are targeted for launches in 1QFY20. — TA Securities, Nov 28