This article first appeared in The Edge Financial Daily on November 21, 2018

Mah Sing Group Bhd
(Nov 19, RM1.02)
Downgrade to neutral with a lower target price of RM1.08: Mah Sing Group Bhd’s cumulative first nine months ended Sept 30, 2018 (9MFY18) core net earnings of RM204.9 million came in slightly below our expectations, making up 69% of our full-year forecast as progress billing came in slightly weaker than expected.

Nevertheless, 9MFY18 core net income (CNI) was within consensus expectations as it made up 76% of the consensus estimate.

On a sequential basis, third financial quarter ended Sept 30, 2018 (3QFY18) CNI fell 17% quarter-on-quarter (q-o-q) to RM63.1 million, in line with a lower top line (-14% q-o-q). The lower earnings for 3QFY18 were due to low progress billing, higher marketing expenses and higher administrative expenses.

On a yearly basis, 3QFY18 CNI eased 25.4% year-on-year (y-o-y) to RM63.1 million, bringing 9MFY18 CNI to RM204.9 million (-22.8% y-o-y).

The decline in earnings was due to a lower contribution from new projects in the Klang Valley as the projects were still in initial stages of construction.

Meanwhile, unbilled sales decreased marginally to RM2.51 billion for 3QFY18 from RM2.65 billion for 2QFY18, providing less than one year of earnings visibility.

Mah Sing recorded new property sales of RM275 million for 3QFY18, lower than new sales of RM472 million for 2QFY18 as buyers adopted a wait-and-see stance prior to the announcement of Budget 2019.

That brought cumulative new sales to RM1.2 billion for 9MFY18. New sales for 9MFY18 were slightly below expectations as they made up 67% of our and management’s new sales target of RM1.8 billion. As such, we have revised our sales target to RM1.6 billion for FY18.

Looking ahead, new property sales for 4QFY18 are expected to be stronger than for 3QFY18 as new sales momentum is expected to support by its homeownership campaign (Nov 15 to Dec 31) whereby property buyers could start enjoying Budget 2019 stamp duty incentives.

Meanwhile, upcoming launches for the remainder of the year include M Vertica serviced apartments and two-storey link homes in Meridin East and M Aruna.

We have downgraded our “buy” call on Mah Sing to “neutral” due to weaker FY18 new sales prospects and an expected lower dividend payout for the financial year as a result of weaker earnings.

Nevertheless, potential catalysts for Mah Sing could emanate from potential land banking exercises as the net cash position of Mah Sing provides the group with opportunities to expand its land bank. — MIDF Research, Nov 19