Mah Sing Group - Within expectations

Period  4Q/FY12

Actual vs. Expectations  FY12 net profit of RM230.6m was within expectations, making up 103.9% and 106.3% of street and our FY12E earnings.

Dividends  Proposed first and final net dividend of 7.5sen (gross of 0.4sen and 7.2sen on single-tier), which implies 3.7% yield, was higher than our initial estimates of 6.2sen.

Key Results Highlights  QoQ, 4Q12 pretax profit declined 5% to RM72.3m despite a 5% growth in revenue. This quarter saw higher sales and marketing expenses arising from higher-level of selling and promotional activities for new property projects such as Ferringhi Residence, i-Parc Iskandar.

 YoY, FY12 earnings increased 37% given strong sales and billings (Kinrara Residence, Garden Residence, Clover @ Garden Residence, Garden Plaza, M-Suites, M-City, townships, i-Parc projects, etc.). Property operating margins improved by 2ppts YoY due to higher margin products such as Kinrara Residence and Garden Residence, which the total of both contributed more than half of the group’s gross profit. As a result, group’s pretax margins expanded further by 2.6ppt to 17.8%.

 FY12 sales of RM2.5b (+11% YoY) came in on the dot of its and our FY12E sales targets. Major new launches in 4Q12 were Ferringhi Residence and iParc Iskandar, Rawang; these projects have achieved about 60%-82% take-up rates.

Outlook  We understand that management is at the final stages of negotiating land deals, although there is no clarity on acquisition size. Nevertheless, MAHSING has been aggressively replenishing sizable land in the past 5 years and thus we expect the same trend to continue.

 As mentioned earlier (report dated 11 Dec 2012), the group can bag approximately RM1.1b worth of land, based on a 70:30 debt-equity ratio, which implies potential new GDV of RM7.4b.

Change to Forecasts  We have fine-tuned FY13E earnings higher by 3.5% to RM275m post house-keeping, based on unchanged FY13E sales target of RM3.1b (+23% YoY). Unbilled sales of RM3.16b provide 1½ -2 years visibility.

Rating   Maintain MARKET PERFORM

Valuation  Post rights and free warrants issuance, we adjust our FD RNAV to RM2.98 (ex-bonus of RM2.59) from RM3.50. With an unchanged discount rate of 30%, we adjust our TP to RM2.08 (ex-bonus is RM1.81) from RM2.45. This implies a total return of 6% and hence, we maintain our MARKET PERFORM call, which is in line with our NEUTRAL sector call.

Risks  Unable to meet sales targets or replenish landbank.

Sector risks, including negative policies.

Source: Kenanga