Investment Highlights

• We maintain BUY on Mah Sing Group (Mah Sing) with a higher SOP-based fair value (FV) of RM2.09 (from RM1.47/share previously) based on a 30% discount to our SOP-based valuation . We made no changes to our neutral 3-star ESG rating .

• The FV implies a FY25F PE of 19x, at parity to its 4-year peak.

• Mah Sing’s 1QFY24 core net profit (CNP) of RM56mil came in within expectations. It accounted for 23% of both our full- year forecast and street’s.

• Nevertheless, we raise FY26F CNP by 5% to account for maiden contribution from the share of profit from a data centre project.

• YoY, the group’s 1QFY24 CNP rose 13% despite a 13% decline in revenue. The lower revenue was primarily due to a higher proportion of new sales secured from new projects, in which contribution to revenue is expected to increase once projects advance beyond the initial stages of construction.

• However, the group’s CNP margin improved to 10% in 1QFY24 from 7.7% in 1QFY23 mainly due to the recognition of cost savings from the finalisation of construction costs for certain contracts.

• YoY, manufacturing division registered an operating profit of RM0.7mil in 1QFY24 vs. an operating loss of RM4mil in 1QFY23, mainly due to ongoing cost optimisation measures of its glove-making operation.

• Year-to-date, Mah Sing has secured 5-month new sales of RM992mil, attaining 40% of its FY24F sales target of RM2.5bil. The major sales contributors are M Zenya (28%), Meridin East (21%) and M Minori (14%).

• Mah Sing launched RM780mil worth of properties in the first 5 months of FY24, accounting for 28% of its FY24F planned launches of RM2.8bil.

• We believe Mah Sing is on track to meet its FY24F sales target of >RM2.5bil with the anticipation of stronger sales in 2HFY24. This is supported by several planned launches, including M Azura, M Tiara, M Sinar, M Terra, M Legasi and MSS Business Park .

• QoQ, the group’s unbilled sales were flat at RM2.3bil, which represents a fair cover ratio of 1x FY24F property development revenue.

• QoQ, Mah Sing’s revenue in 1QFY24 dropped 17% while CNP fell 21%. This decline is attributed to a higher proportion of new projects in the initial stages of construction.

• Mah Sing’s wholly-owned Southville City entered into a collaboration agreement with Bridge Data Centres Malaysia V (BDC) (primarily owned by Bain Capital) for the joint venture development of data centre facilities and infrastructure on a freehold land located in Dengkil, Selangor measuring 17.6 acres within Mah Sing’s Southville City township in Bangi, Selangor .

• The collaboration with BDC on the initial land for a data centre will have a planned capacity of up to 100MW. This area is part of a larger 150-acre land bank, which is designated for data centre development with a total planned capacity of up to 500MW.

• Under the joint venture development, Mah Sing will contribute and reserve the land for the project and apply for a power supply of up to 100MW, water supply and fibre connectivity. BDC’s responsibilities include planning and developing high-level designs, engaging hyperscale customers and handling daily operations/maintenance.

• Although the share ratio between BDC and Mah Sing in the joint venture company has not been disclosed yet, management has indicated that they will hold a 20% stake in the joint venture company, generating recurring income from offtakers such as hyperscalers and AI DCs.

• Based on projected revenue of RM650mil for 100MW and 19% net margin, Mah Sing's 20% stake in the venture could contribute RM25mil to its bottom line annually. Management guided that earnings from this venture could contribute within the range of 12 to 18 months from now.

• Southville City has drawn interest from data centre operators due to certain parcels of Mah Sing’s Southville development in Bangi securing a high-power supply provision. Moreover, being less than 50 km from TM’s Morib landing station allows for dark fibre connections. The group has engaged in discussions with other data centre operators and has garnered strong interest.

• The stock currently trades at a bargain FY25F PE of 16x vs. a 4-year peak of 19x and offers a fair dividend yield of 3%. We believe the mid-to-long-term outlook for Mah Sing remains positive, backed by its:
  
  (i) savvy execution and quick turnaround business model;
  
  (ii) strong focus on affordable properties at strategic locations which have strong demand; and
  
  (iii) commitment to tap into Malaysia booming data centre industry via a joint venture.

Source: AmInvest Research - 31 May 2024