Mah Sing’s earnings growth seen slowing in FY16-17

Mah Sing Group Bhd (Jan 7, RM1.36)

Maintain neutral with a target price (TP) of RM1.40: According to The Edge Financial Daily, Mah Sing Group Bhd has set its property sales for financial year 2016 (FY16) at RM2.3 billion. This represents a flattish year-on-year growth. Note that The Edge Financial Daily quoted Mah Sing chief executive officer Ng Chai Yong for the news.

Additionally, Ng is quoted as saying that the company’s direction in 2016 will still remain in building affordable products for the mass market, priced within a RM500,000 range. This is supplemented by its existing high-end residential units, industrial products and retail malls.

We are neutral on the news as the FY16 sales target is close to our target of RM2.28 billion. As a result of the flattish sales trend, we believe that earnings growth momentum should slow down in FY16 and FY17.

As it is, we expect FY16 earnings growth to slow down to 4% from 11% expected in FY15. Having said that, we believe that Mah Sing’s target is prudent considering the challenging outlook for the sector.

We maintain our earnings forecasts for FY15 and FY16, as we make no changes to our new property sales target.

Mah Sing’s balance sheet is very strong with a net gearing of only 0.05 times, and we expect it to stay below 0.15 times up to end-FY16. This should allow the company to balance its short-term stability, while prudently approaching future land acquisitions to sustain long-term growth.

We maintain our “neutral” call on Mah Sing, with a TP of RM1.40. Our valuation methodology remains unchanged, which is based on a 25% discount to revalued net asset valuation.

Any upside to its share price is expected to be limited, due to the flattish sales trend in FY16. However, its downside is supported by a decent dividend yield of 4.3%. — MIDF Research, Jan 7

This article first appeared in The Edge Financial Daily, on Jan 8, 2016. Subscribe to The Edge Financial Daily here.