Better margins from cost savings
? 1QFY22 core net profit was above estimates due to higher-than-expected
cost savings from completed/near-completion construction contracts.
? 1Q22 new property sales of RM450m made up 23% of its FY22F sales target
of RM2bn. More aggressive new launches expected in 2Q-4Q22F.
Key results highlights
Mah Sing Group’s 1QFY22 core net profit came in above expectations, at 36% of our and
30% of Bloomberg consensus’ FY22F estimates on higher-than-expected margins arising
from cost savings of completed/near-completion construction contracts. 1Q22 core net
profit rose 3% yoy, largely driven by stronger operating profit at its property development
division (+22% yoy), which offset the operating loss at its manufacturing division due to
the lower absorption of overhead costs at the initial phases of the glove plant’s operation.
On track to achieve FY22F new property sales target of RM2bn
1Q22 new property sales were higher at RM450m vs. RM400m in 1Q21, making up 23%
of its FY22F sales target of RM2bn. We gather the group has secured RM873m bookings
in the pipeline as of 29 May 22. By price point, 60% of its FY22F target new sales will
likely come from properties priced below RM500,000/unit, 34% priced at RM500,000-
699,999/unit, and the remaining 6% at/above RM700,000/unit. At end-Mar 22, unbilled
sales stood at RM2bn vs. RM1.73bn at end-Mar 21. For FY22F, the group plans to
launch new projects with a total gross development value (GDV) of RM2.4bn, including M
Senyum (Sepang), M Astra (Setapak), M Nova (Kepong), and M Panora (Rawang). In
1Q22, it launched new projects worth up to RM180m (vs. RM606m in 1Q21) while the
bulk of the FY22F new launches will be rolled out in the remaining quarters of this year.
Rising building costs seem manageable for now
Management guided for a rise in construction costs of up c.10% in FY22F due to rising
building material prices. However, the group is expecting minimal impact on its margins
given: (i) part of the higher cost could be mitigated by product price increases at mature
townships/areas, (ii) the adoption of e-model project designs for better control of
construction sites/progress and sequencing of works, and (iii) better cost efficiencies
through bulk purchase of building materials. Most of its projects are progressing well and
are not unduly affected by the current industry labour shortage, the company said.
Reiterate Add
We raise our FY22-24F EPS estimates by 20-28% to reflect: (i) lower distribution to
holders of perpetual securities following the recent redemption of RM650m perpetual
securities in Apr 22, (ii) higher margins from project cost savings, and (iii) changes in
project development timeline. Our SOP-based TP is unchanged at RM0.75. Reiterate
Add given its strong sales momentum, additional contributions from its glove unit, and
decent dividend yields of 4-5% for FY22-24F.