MAHSING (FV RM2.69- BUY) 1QFY12 Results Review: Buoyed by Strong Margins

Mah Sing’s  annualized  1QFY12 results came in 14.9% and 11.4% above our and consensus expectations. While revenue was largely in line with our estimate, the outperformance was largely attributed to higher-than-expected margins, bolstered by lower than expected administration and selling expenses. Subsequently, we are raising our FY12 and FY13 net profit forecasts by 14% and 17.8% respectively on incorporating a  higher margin assumption. We maintain our Buy recommendation, at an unchanged FV of RM2.69, based on 20% discount to our RNAV valuation.  

Stronger than expected. Mah Sing’s net profit of RM59.9m for 1QFY12 accounted for about 28.7% and 27.8%  respectively  of our and consensus’ FY12 net profit forecasts. While revenue was within our estimate, the better than expected results were attributed to the lower-than-expected administrative and selling expenses. Revenue surged 46.8% y-o-y, fuelled  by higher progress billings from its on-going projects, especially Garden Residence in Cyberjaya, Kinrara Residence in Puchong and Sierra Perdana in Johor Bahru.  During the  quarter, the company also booked in  maiden billings and revenue recognition from Icon City. In line with the higher revenue, net profit climbed 45.5% y-oy. Q-o-q revenue was up by 8.4%, but  net profit jumped by 46% q-o-q, attributed to  a RM11.8m lease provision recorded in 4QFY11.

Unbilled sales at RM2.48bn. For the first 4.5 months of FY12, Mah Sing recorded total sales of about RM1.008bn, which we  deem  on track to meet up its sales target of RM2.5bn for FY12.  Unbilled sales  totaled  RM2.48bn as at end-March 2012, which is equivalent to about 1.8x its property revenue for FY11. Mah Sing intends to launch at least RM3bn worth of new projects in FY12, with 70% of the launches to be priced below RM1m per unit, instead of high-end products. This is  in line with the current market demand for more affordable houses. The  company’s main focus will still be the Klang Valley, where 68% of its target launches would be located, while the remaining 20% and 12% of its projects will take off in Penang and Johor respectively.

Maintain Buy. With the better-than-expected 1QFY12 results, we are  raising our FY12 and FY13 earnings forecasts by 14% and 17.8% y-o-y. This is after incorporating a higher margin assumption  due to lower admin and selling expenses. We maintain our Buy rating on Mah Sing, at an unchanged FV of RM2.69, based on a 20% discount to our RNAV valuation. The stock’s relatively inexpensive valuation makes it an attractive value proposition, especially for investors seeking cheaper exposure among mid-sized property counters.

Source: OSK