MAHSING’s 1QFY24 results met expectations. Its 1QFY24 core net profit rose 20% YoY on a better product mix with more higher-margin products and lower tax. It is venturing into the data centre space in collaboration with Bridge Data Centres (BDC). We maintain our forecasts but lift our TP by 17% to RM1.87 (from RM1.60). Maintain OUTPERFORM.

MAHSING’s 1QFY24 core net profit of RM260.0m met expectations at 25% and 24% of our full-year forecast and the full-year consensus estimate, respectively.

YoY, its 1QFY24 revenue declined 13% on slower progress billings as most of its on-going projects were new and at early stages of construction. However, its 1QFY24 core net profit rose 20% thanks to a better product mix with more higher-margin products and lower tax.

QoQ, its 1QFY24 revenue eased 17% as 1Q is typically a low season for property sales and construction progress due to Chinese New Year holidays. Its core net profit only declined 7% thanks to lower tax.

Data centre venture. Separately, it announced its partnership with Bridge Data Centres (BDC) to launch Mah Sing DC Hub @ Southville City in Bangi, Selangor. The group will design and develop the data centre facilities and infrastructure on a 17.55-acre land, including securing necessary approvals and planning permission with the project’s capacity involving up to 100MW.

Additionally, the group has earmarked 150 acres of land at Southville City for further expansion into a data centre hub with a planned capacity of 500MW.

We are overall positive with the development as it helps MAHSING to grow recurring income streams. At the very least, it would serve as a catalyst for greater land revaluation due to the land being highly well-suited for data centres thanks to its close proximity to power supply and access to flowing waters via Langat River.

Outlook. MAHSING is on track to meet its minimum sales target of RM2.5b, booking in RM992.0m of property sales as of May 2024. Meanwhile, its unbilled sales stand at RM2.3b. In FY24, MAHSING intends to launch seven new projects with one already launched (M Zenya, with 92% take-up rate), totalling RM2.8b. Of this, 61% of the total planned launches are in Klang Valley with 72% are priced below RM500K.The products will cater to diverse market segments, particularly. affordable housing and first-time home buyers.

The recent land purchase in Sepang for Mah Sing Business Park in Jan 2024, is on track to be launched in 4QFY24 with a potential GDV of up to RM2.0b, which will sustain earnings at its industrial property segment.

On its manufacturing segment, the group expanded its plastic pallet operations to Jakarta and intends to further expand within Southeast Asia with the key drivers being the regional e-commerce markets which prefers plastic over wooden ones for better durability. It has plans to spin off this business within the next three years.

Forecast. Maintained.

Valuations. We raise our TP by 17% to RM1.87 (from RM1.60) as we now apply a 30% discount to its RNAV (from 40%) to reflect improved realisability of its GDV following the announcement of the catalytic data centre project in its Southville township project. At 30%, the discount is narrower than the industry average of 55%. There is no adjustment to our TP based on ESG given a 3-star rating appraised by us (see page 6).

Investment case. We like MAHSING for: (i) its focus on affordable products targeting first-time house buyers, and (ii) sound land bank management and turnaround which minimises carrying costs, (iii) a strong war chest for land acquisitions underpinned by a clean balance sheet, and (iv) more significant recurring income stream following the venture into data centre. 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 mortgage rates, hurting affordability.

Source: Kenanga Research - 31 May 2024