Mah Sing’s glove investment to uplift earnings


CREDIT Suisse Group AG has maintained its ‘Outperform’ call on Mah Sing Group Bhd, but raised its target price for the property developer to RM1.10 from 90 sen previously.

The call was made following Credit Suisse’s view that the Malaysian property market has bottomed albeit with little near-term catalysts, while Mah Sing’s diversification into gloves could provide an earnings uplift from 2021 onwards.

“We believe the glove demand-supply shortage is likely to persist for longer, thus supporting a high average selling price in the near term.

“Over the longer term, however, we think the new glove entrants, including Mah Sing, will likely be less competitive versus the bigger players which have had a proven track record,” the wealth manager, investment bank and financial service firm noted in a report recently.

Credit Suisse added that Mah Sing’s diversification into glove manufacturing is progressing as scheduled, with equipment suppliers having commenced fabrication of selected parts of the machinery and installation of initial lines at the completed part of the factory.

To recap, the first six production lines are expected to be ready for operation by the second quarter of 2021 (2Q21), followed by another six production lines by 3Q21.

These 12 production lines are expected to have a maximum production capacity of up to 3.68 billion pieces of gloves per annum.

Mah Sing’s 3Q20 net profit rebounded 78% quarter-on-quarter (QoQ) to RM27 million due to the resumption of operations in the Recovery Movement Control Order.

Year-on-year (YoY) net profit fell 46% with a lower contribution from both its property development and plastic divisions, while its first nine months of 2020’s (9M20) net profit decreased by 53% YoY at RM72 million.

The group’s property sales of RM429 million in 3Q20 were 14% higher YoY and 150% higher QoQ.

The cumulative 9M20 property sales came in 25% lower at RM847 million and made up 77% of the 2020 full-year sales target of RM1.1 billion.

About 80% of the property sales were derived from the Greater Kuala Lumpur region, 16% from Johor and the remaining 4% from Penang.

Mah Sing is confident in achieving its sales target for the remainder of 2020 and plans to launch more projects in the affordable segment such as Carya in M Aruna, Rawang, Selangor and Acacia link homes in Meridin East, Johor.

Credit Suisse reduced Mah Sing’s FY20 earnings estimates as it updates for progress billing, given that the bulk of the property sales this year was derived from new launches.

“We raise FY21/FY22 estimates by 18% to 58% to factor in the maiden contribution from the glove division. We estimate the effective production capacity in FY21 to be 501 million pieces, given the progressive rollout of lines and our average selling price assumption is RM346.59,” it said.

Mah Sing’s benefit of being the new kid on the block is that it is not tied to any long-term contracts and therefore, able to sell all its new capacity at spot price.