Mah Sing - BUY - 30 May 2008

Mah Sing Group - 1Q08 within expectations (Results Note)



Price: RM1.50

Target Price: RM2.07

Recommendation: BUY



· 1Q08 net profit of RM22m was within our and market expectations, accounting for 22% and 20% of forecasted RM100m and 109m, respectively, for FY08E. Mah Sing Group Bhd (MSGB) in-line results are attributable to higher billings and take-up rates from Hijaun Residence, Aman Perdana (AP), Kemuning Residence (KR) and The Icon, Jalan Tun Razak (IconJTR).

· YoY, 1Q08 net profit grew 22%, from stronger 1Q08 property operating margins of 30% (1Q07: 23%). 1Q08 saw more billings from higher margin products; like KR with an average 25% operating margin compared to the Perdana (township) series with an average 20% margin. Furthermore, MSGB was able to lock-in lower construction cost for AP and KR as they were being constructed in advance because take-up rates were very promising during launches. Hence, MSGB was able to preserve high margins although raw material cost has escalated by some 10% YoY.

· QoQ, 1Q08 pretax profit increased by 5% to RM31m. Finance cost reduced by 21% QoQ to RM1.2m due to 5% QoQ decrease in borrowings to RM149m. Additionally, MSGB enjoyed an exceptional gain of RM0.5m from sale of scrap metals from demolishing the existing building on Southgate's site, which boosted operating income by 279% to RM1m.

· No revision in our FY08E net profit of RM100m, a 23% YoY growth. Even in these times of political and global economic uncertainties, which typically translate to the "wait-and-see" approach to property purchases, we are confident of our forecasts due to MSGB's locked-in en bloc sales of IconJTR and The Icon, Mont Kiara. Additionally, the scarcity of prime commercial space in the city makes MSGB's high margin commercial project, Southgate, a popular pick as the project is already registering strong sales (80% take-up rate for the Vivo block since launch in 15/3/08 to 31/3/08). Unbilled sales remain strong at RM1.1b, of which 84% is derived from the commercial properties segment.

· Target price of RM2.07 unchanged. FY08E and FY09E PER remains attractive at 9.3x and 6.8x, respectively. Maintain BUY.





KENANGA INVESTMENT BANK BERHAD (15678-H)