KUALA LUMPUR, Nov 27: Following Mah Sing Group Berhad’s announcement of its Q3 2015 results this afternoon, stock broking research provider, KAF-Seagroatt & Campbell Berhad released its research report. The report highlighted the following:
Mah Sing’s 9M15 net profit grew 5% and constituted 78% of our estimates which is commendable given challenging market conditions. According to management, sales momentum has improved in 3Q15 and the group achieved total sales of RM1.6bn as at 9M15 (i.e. 70% of its revised sales target of RM2.3bn).The group is in a good position to weather sector headwinds with high unbilled sales, remaining GDV and cash pile, in our view. Maintain Buy.
- On a y-o-y basis, 3Q15 revenue increased 8% due to higher progress billings and sales from ongoing developments such as M City (Jalan Ampang), Icon City (Petaling Jaya), Southville City (Bangi), M Residence 2 (Rawang), Garden Residence, Clover and Garden Plaza (Cyberjaya). However, operating profit declined 7% due to higher cost of sales and administrative & other expenses. Net profit was down 6% due to higher finance cost.
- On a q-o-q basis, 3Q15 revenue and operating profit were down 1% and 6% respectively. Management attributed this to higher profit recognition from completed projects in 2Q15. Net profit declined 7% qoq. We note that operating margins have been on a declining trend at 14.5% in 3Q15 versus 15.3% in 2Q15 and 16.9% in 3Q14. This could be due to the shift in product mix to the more affordable segment coupled with promotional activities to spur sales.
- Overall, 9M15 earnings constituted 78% of our forecast and 73% of Bloomberg consensus’ estimates. We believe the group would be able to deliver consistent earnings in 4Q15 with steady progress billings.
- Mah Sing achieved sales of RM1.6bn over 9M15, constituting 70% of its FY15F sales target of RM2.3bn. The key projects that made up the sales were Southville City (26%), Lakeville Residence (18%), M City (13%) and D’sara Sentral (11%). It was comforting to note that sales momentum has picked up in 3Q15 whereby the group achieved RM640m in sales compared to RM401m in 2Q15 and RM560m in 1Q15.
- Upcoming launches in the Klang Valley include the fourth block of serviced apartments at D’sara Sentral (Sg. Buloh) priced from RM580k per unit, fifth block of serviced apartments at Lakeville Residence (Taman Wahyu) priced from RM595k, Cerrado serviced apartments at Southville City (Bangi) from RM388k, M Residence 3 linked homes in Rawang from RM593k. In Johor, the group plans to launch linked homes at Meridin East from RM350k and in Penang, Feringghi Residence 2 resort condominiums from RM775k. With attractive price points in the mid-market segment, we opine that these would spur sales in current market conditions.
- Earnings visibility remains strong, with unbilled sales at RM4.75bn translating to1.8x FY14 property development revenue. Remaining GDV amounts to RM25.9bn which management expects to sustain the group for another 8 years.
- Balance sheet wise, its net gearing is at 24% (including its perpetual sukuk of RM540m which is classified as equity for accounting purposes), with cash and bank balance of RM1.3bn as at 3Q15.
Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price and only reflects capital appreciation. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%.
Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months.
Market or sector view: This view is the responsibility of the strategy team and a relative call on the performance of the market/sector relative to the region. Overweight/Underweight implies upside/downside of 10% or more and Neutral implies less than 10% upside/downside.
Target price: The target price is the level the stock should currently trade at if the market were to accept the analyst’s view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ from ‘fair’ value.