Mah Sing Group Bhd
(Aug 27, RM1.81)
Maintain buy at RM1.84 with target price RM1.94: Mah Sing Group’s (MSGB) 1HFY10 earnings met both our and consensus expectation, accounting for 53.6% and 57% of full-year numbers respectively.
Development rollout accelerated growth. The launch of the Residence series and commercial developments (iParc and Southgate) drove earnings growth. We believe the present momentum of project launches will continue through 2H10 given the positive sector sentiment.
Cumulative earnings before interest and tax (Ebit) and operating margins declined 2.77 percentage points (pps) and 5pps. Decline can be attributed to ongoing sales and marketing expenses (SME), such as interest payments to banks during construction and marketing promotions. Nevertheless, 1HFY10 operating profit rose 37.1% year-on-year on the back of further launches from projects in the pipeline. Continue to expect SME to rise as the group gears up for new launches with other promotions. However, we believe SME will remain within manageable levels.
The group’s impressive year-to-date (YTD) sales stand at RM1.02 billion, beating its RM1 billion target for 2010. We remain confident MSGB will surpass its new 2010 target of RM1.5 billion. Sales growth will come on the back of up to RM28 million in new launches in the Klang Valley, Penang and Johor.
We maintain our forecasts unchanged at this juncture as we await further confirmation on the reception of the recent launches of Kinrara Residence, Hijaun Residence, One Lagenda and M-Suites. We are confident of strong-take-up rates which will warrant an upward revision of our present estimates.
Maintain “buy” with unchanged target price (TP) of RM1.94. Our TP is derived from the group’s RNAV parity. We believe MSGB’s landbank replenishment momentum will taper off after its recent RM1.1 billion acquisition of Kinrara (Puchong), Subang-Damansara (Sungai Buloh) and Bukit Jelutong (Shah Alam) land parcels. Present jobs on-hand provide strong earnings visibility through 2013 and should outsee the possible lumpy effect of IFRIC15. At present, MSGB has a combined GDV balance and unbilled sales of RM7.44 billion. We believe earnings growth prospects to be positive for the group.
MGSB remains our top pick for the sector given its (i) proven “quick turnaround” model; (ii) commendable GDV balance and proven achievable sales target; (iii) healthy balance sheet; (iv) steady historical dividend yield (4%to 6%) with a consistent mid-teens ROE (five-year average 15.7%) and (v) it is one of the few developers with exposure to all product ranges (residential, commercial and industrial). — MIDF Research, Aug 27
This article appeared in The Edge Financial Daily, August 30 2010.
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