Mah Sing reported 1QFY20 core PATMI of RM13m (-69.1% QoQ, -64.6% YoY). New sales of RM247m were achieved while unbilled sales stands at RM1.8bn (1.3x cover). Mah Sing is maintaining both sales target of RM1.6bn (+6.6% YoY) and planned GDV launch of RM2.1bn (+10.5% YoY) as it plans on ramping up activities in 2HFY20. We decrease our FY20/21 by -41.2%/-12.4% to take into slower progressive billings and a potential margin compression. We introduce FY22 core earnings at RM167.6m. Maintain BUY with a lower TP of RM0.53 based on an unchanged discount of 75% to RNAV of RM2.14.

Below expectations. Mah Sing reported 1QFY20 core PATMI of RM13m (-69.1% QoQ, -64.6% YoY), forming 11.5% and 9% of our and consensus full year forecasts, respectively. Note that we derive our core PATMI forecast after (i) including payments to holders of perpetuals (RM18.3m) while it may not be the case for consensus figures. The results were below expectations largely due to lower than expected margins and progressive billings. No dividends were declared.

QoQ/YoY. Revenue decreased -16.2%/-17.6% to RM371.1m on the back of lower progressive recognition and softer demand during the festive season and implementation of MCO measures. Subsequently, core PATMI fell -69.1%/-64.6% to RM13m as it was also hit by lower margins coupled with the perp payments impact which were proportionally higher towards 2QFY20’s earnings given its lower base.

New sales of RM247m was achieved in 1QFY20, which represents 15% of its full year target of RM1.6bn. Unbilled sales improved to RM1.8bn, representing a cover ratio of 1.3x over FY19’s property development revenue.

Outlook. For the rest of FY20, Mah Sing is maintaining both sales target of RM1.6bn (+6.6% YoY) and planned GDV launch of RM2.1bn (+10.5% YoY) as it plans on ramping up activities in 2HFY20. We gather that bookings garnered during the MCO period amounted to c.RM350m worth of products, which can be attributed to its efforts of digitalising sale activities. Nonetheless, we remain cautious on the targets with Covid-19 taking a toll on the broader economy. Despite the Covid-19 impact towards FY20’s earnings, we remain positive on the longer-term prospects as FY21 will see better earnings contributions from key projects such as M.Vertica and M.Centura which are currently in its early stages of construction. The projects have resumed construction works as they have gotten the necessary approvals required albeit at a slower pace given the required adherence to the SOPs during CMCO. Mah Sing has redeemed its Perpetual Sukuk of RM540m in 1QFY20, reducing its yearly payments by c.RM36m moving forward. Net gearing remains rather healthy at 0.23x even after including RM789m of its remaining perps.

Forecast. We decrease our FY20/21 by -41.2%/-12.4% to take into slower progressive billings and a potential margin compression. We introduce FY22 core earnings at RM167.6m.

Maintain BUY, TP: RM0.53 (from RM0.54). Our TP is lowered marginally despite the earnings revision as we have rolled over our valuation based on an unchanged discount of 75% to RNAV of RM2.14. Our high discount is placed reflects the uncertainty in duration of the Covid-19’s potential impact towards sales. We will revisit our valuation upon further clarity on the status of the outbreak. We see value in the stock after it retraced -34% YTD. With P/B valuation at 0.32x (below -3SD of its 5-year mean), this is now at a historical low; even below its GFC trough of 0.68x. The focus on affordable products with efforts on digitalising sales should garner strong response and dividend with a minimum payout ratio of 40% (yield of 5%, based on revised FY20 forecasted earnings) should hopefully serve as a support to share price

Source: Hong Leong Investment Bank Research - 8 Jun 2020