MAHSING’s 9MFY23 results met expectations on improved sales particularly in the affordable segment. It plans to strategically procure land parcels to support upcoming projects. MAHSING’s pipeline of affordable homes will bode well amidst the present market conditions. We maintain our forecasts, TP of RM1.00 and OUTPERFORM call.

Within expectations. MAHSING’s 9MFY23 core net profit of RM150.5m came within expectations, accounting for 78% and 77% of our full-year forecast and the full-year consensus estimate, respectively.

YoY, its 9MFY23 grew 17% from increased new property sales, namely M Nova, M Astra, and Meridien East (take-up rate of 90%, 99%, and 91%, respectively), enhancing property development revenue by 21%. This was mainly attributed by increase in offerings to cater to the affordable housing segment. However, the group’s operating margin stood at 13.7% (-0.8ppt) mostly due to property development margins which could be caused by less favourable product mix. While still in the red, we note that the group’s manufacturing division’s losses are narrowing as cost optimisation measures are paying off, translating to an operating margin of -1.7% (+2.6ppts) Overall, MAHSING’s 9MFY23 core net profit registered at 150.5m (+13%).

QoQ, revenue was flattish, but profit before tax saw a slight uptick of 1% attributed to higher sales of its new properties. However, net profit saw a 1% decline due to the increased tax rates.

Outlook. The group’s focus on affordable properties persists, which have had a positive influence on its target market and is expected to give a positive impact in the coming years. YTD, the group has acquired four parcels of lands in Puchong, Semenyih, and Kepong, with a combined GDV of RM5.0b, therefore strengthening its land banks. Alongside the completion of three projects in FY23, MAHSING plans to launch future projects, namely M Senyum in Salak Tinggi, Meridin East in Johor Bahru, M Residence in Rawang and Southville City in Bangi. With these new launches in the pipeline and 9MFY23 sales of RM1.8b, the group is optimistic about surpassing its full-year sales target of RM2.2b. The unbilled sales of RM2.4b as of 9MFY23 provide a positive outlook for future revenue. Regarding new brand initiatives, the group has recently launched “Mah Sing First” mainly to attract first-time house buyers with incentives like rebates, lower down-payment, and stamp duty exemption for units <RM500K. This will further enhance the attractiveness of its products to potential buyers.

Additionally, MAHSING is currently exploring to diversify its industrial development portfolio, by actively seeking partnerships with new foreign businesses, mainly from China. Upon confirmation, the group will acquire lands for the establishment of the related new plants. Currently they have ongoing discussions with land owners in Klang Valley, Penang, and Johor and once the partnerships are confirmed, land acquisitions will be initiated accordingly.

While its manufacturing division is likely to continue experiencing losses, we are encouraged by measures taken to sustain operations amidst generally unfavourable glove selling pricesin the near term.

Forecast. Maintained

We maintain our TP RM1.00 based on a 50% discount to its RNAV which is below the industry average of 60%-65% to reflect its significant exposure to the high-end residential and commercial segments. There is no adjustment to our TP based on ESG given a 3-star rating appraised by us (see page 5).

We like MAHSING for: (i) its efforts to keep its net gearing ratio in check, with a 3QFY23 reading of 0.13x being the lowest since creeping up to 0.34x in 2QFY22, (ii) lifestyle-focused products to provide ease of entry for first-time home buyers, and (iii) sound land bank management and turnaround which minimises carrying costs. That said, MAHSING is still relatively heavily exposed to high-rise residential properties which will continue to be in a state of overhang in certain regions. Maintain OUTPERFORM.

Risks to our call include: (i) persistent overhang in the high-rise segment, (ii) widening losses at its glove division due to persistent oversupply, and (iii) sustained elevated inflation and rising interest rates, hurting affordability.

Source: Kenanga Research - 30 Nov 2023