Mah Sing’s glove venture helps boost its valuations


ANALYSTS revised Mah Sing Group Bhd’s target price (TP) upwards after the property developer announced plans to diversify into the manufacturing and trading of gloves and healthcare products.

Six research houses, with the exception of TA Securities Holdings Bhd, revised their TP on Mah Sing to above RM1 and called for a ‘Buy’ on the company.

The stock rose 22 sen or 30% to 94 sen last Friday.

AmInvestment Bank Bhd analyst Thong Pak Leng has a ‘Buy’ call on Mah Sing with a higher fair value of RM1.50 per share versus 99 sen previously on the diversification move.

“The increase in the fair value is to reflect the contribution from the company’s glove manufacturing business in the financial year of 2021 (FY21).

“We make no changes to our FY20 numbers, while raising FY21 and FY22 net earnings forecasts by 43% and 91% respectively,” he said as the glove business is valued at 25 times over FY21 earnings.

Thong added that Mah Sing has the financial strength to venture into the business given its current strong cashflow position, coupled with the new issuance of RM100 million convertible sukuk.

“After paying RM150 million of capital expenditure for its diversification’s Phase 1, Mah Sing’s net gearing will increase from 0.4% to 4.8%,” he said.

KAF Equities Sdn Bhd analyst Izzul Hakim Abdul Molob also maintains a ‘Buy’ recommendation on Mah Sing, with a TP of RM1.10.

“Despite potential gains from this venture, our main concern is execution. As such, we assume additional profit of only RM20 million from this venture in FY21,” he said.

He assumes a higher private equity multiple of 20 times in FY21 on its overall manufacturing business in view of the potential growth from the gloves segment.

“Our ‘Buy’ on Mah Sing is based on its strong balance sheet as it is not excessively indebted and should be able to repay debt obligations, reducing near-term credit risk,” he said.

MIDF Amanah Investment Bank Bhd, TA Securities and RHB Investment Bank Bhd have ‘Buy’ calls on the company, with CGS-CIMB Securities Sdn Bhd calling for ‘Add’ and Kenanga Investment Bank Bhd expecting the share will ‘Outperform’.

TA Securities analyst Thiam Chiann Wen arrived at a new TP of 96 sen for Mah Sing, and upgraded the stock to ‘Buy’ with a potential upside of 32%.

“Downside risks to our recommendation include: Delay in commissioning of glove manufacturing plant and slower demand should the Covid-19 pandemic be contained sooner-than-expected,” he said.

Under Phase 1, Mah Sing plans to instal and commission 12 new gloves production lines with an estimated total production capacity of up to 3.68 billion pieces of gloves per annum in Kapar, Klang, with the first six lines scheduled to commence production in the second quarter of 2021, and the remaining in the following quarter.

A second phase of 12 additional production lines with similar output will follow once the first phase capacity is sold. The glove-making division will be led by a management team with over 30 years of experience in the industry. Mah Sing intends to gradually expand up to 100 gloves production lines.

The land in Kapar is rented at RM274,000 per month starting from November 2020 for three years with an option to renew for four terms.

Mah Sing will be tailing most other companies that have diversified into glove-making, including Aspen (Group) Holdings Ltd and GPA Holdings Bhd to name a couple.