Mah Sing Group Berhad (“Mah Sing“) needs very little introduction. It’s name is synonymous with property development, in Malaysia.
Yet, Mah Sing’s business can be split into two divisions: Property and Plastics.
The business
Property
According to its FY 2017 annual report,
Mah Sing develops residential properties, commercial properties and
industrial properties. It is also focused on integrated developments,
where any of the above types of properties are combined, and townships.
Mah Sing’s M Vertica project in Kuala
Lumpur, is an example of an integrated development, between residential
and retail units. Meanwhile, M Aruna, in Rawang, is an example of a
township.
Apart from the Greater Kuala Lumpur and
Klang Valley, Mah Sing also has its footprints in Penang, Johor and
Sabah. You may check out all of Mah Sing’s ongoing projects HERE.
In addition to property development, Mah
Sing’s other businesses, within the property division, are property
management and property investment.
Without a doubt, the property division is Mah Sing’s biggest revenue contributor; a staggering ~87% of revenue, in FY 2017.
Plastics
Little known to many, Mah Sing actually
started out as a plastic trading company which then branched out into
property development. Now, Mah Sing also manufactures plastic goods such
as pallets, containers, furniture (plastic chairs and tables),
motorcycle helmets and others.
Another company that comes to mind, because of its relation between plastics and property development, is Scientex Berhad, although Scientex Berhad manufactures plastic packaging.
Mah Sing’s plastics division contributes about 10%, in terms of revenue, in FY 2017.
Financials
| DATA | 2017 | 2016 | 2015 | 2014 | 2013 |
| REVENUE (RM’000) | 2915791 | 2957617 | 3108506 | 2904723 | 2,005,596 |
| OPERATING PROFIT (RM’000) | 476545 | 499963 | 453449 | 368748 | 307728 |
| PROFIT TO SHAREHOLDERS (RM’000) | 361895 | 361357 | 386677 | 339249 | 280616 |
| SHAREHOLDERS’ EQUITY (RM’000) | 3455968 | 3288111 | 3135622 | 2268629 | 1952292 |
| DEBT (RM’000) | 3677790 | 2924028 | 3471583 | 3027675 | 2620472 |
RATIO
|
|||||
| DEBT TO EQUITY RATIO | 1.07 | 0.89 | 1.11 | 1.34 | 1.34 |
| OCF RATIO | 0.21 | 0.30 | -0.13 | 0.20 | 0.03 |
| OPERATING PROFIT MARGIN (%) | 16.34 | 16.90 | 14.60 | 12.69 | 15.34 |
| PROFIT MARGIN (%) | 12.32 | 12.18 | 12.37 | 12.22 | 13.92 |
| EPS (CENTS) | 12.54 | 13.47 | 15.73 | 18.35 | 21.52 |
| EPS (ADJUSTED) CENTS | 14.91 | 14.88 | 15.93 | 14.68 | 11.56 |
| DPS CENTS | 6.50 | 6.50 | 6.50 | 6.50 | 8.00 |
| DIVIDEND PAY OUT (%) | 52.75 | 48.26 | 41.32 | 35.42 | 37.17 |
| P/E | 9.17 | 10.62 | 9.22 | 9.17 | 10.50 |
| ROE (%) | 10.52 | 9.90 | 12.10 | 15.90 | 15.59 |
From the table above, my valid concern is
the stagnated revenue growth. In fact, revenue has dipped slightly over
the last couple of years. This may be inevitable due to the weakening
local property market since FY2015. It should be noted that 2015 was the
year when GST was introduced.
Despite the stagnated revenue growth,
operating profit margin has been improving since FY 2015. This could be
the doings of a cost conscious management; which is always welcomed.
Profit margin has been very stable between the 12% and 13% throughout
the years in review.
Mah Sing has also been constantly paying
solid dividends, for over a decade. Recently, it has been paying
dividends of least 6.5 cents per share.
Potentials
Mah Sing has a substantial land bank of
2,125 acres with a potential gross development value of RM27.6 billion.
This is sufficient to sustain revenue and earnings growth for another 8
years.
Hit by the property slump in 2016 and
2017, Mah Sing launched its “Reinvent Affordability” campaign, in
October 2017, which entails projects where residential units are sold
under RM500,000.00. M Vertica (Cheras), M Centura (Sentul), M Vista
(Penang) and Meridin East (Johor) are brainchildren of the Reinvent
Affordability campaign. This is Mah Sing’s attempt to reinvigorate
stagnated property sales over the recent years by targeting new home
buyers, who consist of young adults. Indeed this has paid off as Mah
Sing has overwhelming positive reception from the Reinvent Affordability
campaign especially for M Vertica.
Although this is much a speculation on my
behalf, I believe that with the anticipated removal of GST, by the PH
government, young adults, in general, will have a higher disposable
income to purchase homes. This would drive up demand for housing,
albeit slowly. Further, I also expect that the eventual repeal of GST
will reduce Mah Sing’s construction cost because input building
materials and services will no longer bear GST themselves.
Risks
Property slow-down is a risk that is
still lingering the property development industry. There are many
opinions regarding the slow down. My offhand observation is that there
is an oversupply of housing but inadequate demand for it, due to
affordability issues.
Interest rate risk is a latent risk which
affects the economy, including the property market. The property market
usually slows down when interest rate is high because potential
homeowners have the tendency to be put off by higher repayment costs on
their mortgages. In addition, a higher interest rate would affect Mah
Sing’s borrowing costs, which are quite substantial.
Conclusion
Mah Sing is an experienced property
developer with good financials. Being able to increase its operating
profits despite a lacklustre property market is, in itself, a
commendable achievement. At the time of writing, its share price of
RM1.10 is a far cry from its share price of RM1.50, at the end of 2017.
Value has indeed emerged.
Further, Mah Sing has been constantly
paying a dividend of 6.5 cents, including for FY2017, which will ex on
12.09.2018, making it very attractive to dividend investors at its
current price of RM1.10 because this equates to a dividend yield of
5.9%.
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DISCLAIMER
This analysis is published for your
casual and leisurely reading and is not a recommendation to buy, sell or
hold shares and must not be relied upon as a financial advice. You are
encouraged to seek your own financial advice.
Reference:
- FY 2017 Annual Report
- http://www.mahsing.com.my/
- http://www.theedgemarkets.com/article/mah-sing-roll-out-m-aruna-township-rawang-1q18
- https://www.thestar.com.my/business/business-news/2017/10/26/mah-sing-launches-reinvent-affordability-campaign/
- https://www.thestar.com.my/business/business-news/2018/03/03/mah-sing-expects-good-takeup-rate-for-m-vertica-tower-b-in-cheras/
- https://www.straitstimes.com/asia/se-asia/malaysia-to-drop-gst-next-month-fulfilling-election-pledge
- https://www.malaymail.com/s/968077/gst-pushing-cost-home-prices-up-say-peninsular-developers
- https://www.thestar.com.my/business/business-news/2018/01/26/winners-and-losers-from-interest-rate-hike-by-cimb-research/
https://bursagoinglong.com/2018/05/23/analysis-of-mah-sing-group-berhad/
