Analysis of Mah Sing Group Berhad

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.

mah sing

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

Note: Financial data may vary depending on sources.

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%.

If you enjoy reading this write-up, please share and like Bursa:Going Long on Facebook for more updates and analysis of investment-related topics.

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:
  1. FY 2017 Annual Report
  2. http://www.mahsing.com.my/
  3. http://www.theedgemarkets.com/article/mah-sing-roll-out-m-aruna-township-rawang-1q18
  4. https://www.thestar.com.my/business/business-news/2017/10/26/mah-sing-launches-reinvent-affordability-campaign/
  5. https://www.thestar.com.my/business/business-news/2018/03/03/mah-sing-expects-good-takeup-rate-for-m-vertica-tower-b-in-cheras/
  6. https://www.straitstimes.com/asia/se-asia/malaysia-to-drop-gst-next-month-fulfilling-election-pledge
  7. https://www.malaymail.com/s/968077/gst-pushing-cost-home-prices-up-say-peninsular-developers
  8. https://www.thestar.com.my/business/business-news/2018/01/26/winners-and-losers-from-interest-rate-hike-by-cimb-research/

 

 

Analysis of Oceancash Pacific Berhad

Oceancash Pacific Berhad (“Oceancash“) is a manufacturer of two product lines, being:

  1. Felts.
  2. Nonwoven fabrics.

Oceancash has over 20 years of manufacturing experience and expertise, and is currently listed on the ACE market. It is, however, seeking a transfer to the Main Market in the next quarter of 2018 as it has met the requirements for a transfer. Such transfer will require the approval of shareholders. From the reading of its Q4 FY2017 report, the company had already incurred listing transfer expenses. Hence, it appears that the transfer is in motion.

Oceancash Pacific Bhd

Felts 

Felts are textile materials which are made by interlocking the fibres through the process of compression, heating or chemical bonding (using resins) which causes the fibres to mat together, thus creating a textile. Felts can be made out of natural fibres such as cotton and other synthetic fibres.

felts
Felts

The felts produced by Oceancash have many uses especially for:

  1. heat insulation and sound insulation in automobiles;
  2. noise insulation for compressors of split unit air conditioners;
  3. roof insulation; and
  4. carpet underlay.

Oceancash manufactures and supplies about 60% of felts into the local market, thus making it the biggest supplier of felts in Malaysia. Felts produced are mainly supplied to the automotive and air conditioning industries. This makes Oceancash’s earnings largely dependent on the performance of those industries.

Oceancash’s felts are also exported to overseas markets like Thailand, Taiwan, the Philippines and Australia. In terms of overseas market share, Thailand takes the cake for being the largest importer of felts. This comes as no surprise considering Thailand has Southeast Asia’s biggest automotive assembly industry.

The contribution from the insulation segment has been stagnated since 2012. In FY2016, the insulation segment only contributed to 27% of the company’s top line. And in FY2017, that contribution dropped to 23%. This stagnated pattern is a bleak reflection of a weaken automotive industry in Malaysia, Indonesia and Thailand. Consequently, the company postponed the transfer of one of its production lines from Malaysia to Thailand in 2016.

To soften the bleak outlook in the automotive industry, the company has been stepping up efforts in the air-conditioning industry for some reprieve.

Despite the shrouding negativity, the automotive industry in Southeast Asia is predicted to improve in 2018.

Nonwoven fabric 

Nonwoven fabric is a broad categorisation of fabric where the fabric is manufactured without undergoing the process of weaving or knitting, unlike most textiles with which we traditionally associate. Like felts, nonwoven fabric can be made by bonding the fibers through a mechanical, thermal or chemical process.

nonwoven fabric

Nonwoven fabrics are supplied to manufacturers of diapers, sanitary napkins, wet wipes and surgical caps, masks and gowns. The trend overseas is heading towards a more comfortable and softer fabric for diapers and sanitary napkins which require air-through nonwoven fabrics. Better margins can be obtained from air-through nonwoven fabric too. Oceancash is hopeful that the overseas trend would compel local diapers and sanitary napkin manufacturers to follow suit.

More than 80% of its nonwoven fabrics are being exported overseas to Japan, its biggest export market, followed by Thailand, South Korea, China and Indonesia.

In FY2017, the hygiene segment contributed 67% of the company’s revenue. This is an increase from 63%, in FY2016. Overall, the hygiene segment has enjoyed strong performance since 2012.

The focus of the company lies with its hygiene segment. That segment is expected to be a main driving force behind revenue and earnings in the foreseeable future. Hence, the company, in 2016, acquired spooling machines to increase its capacity to manufacture premium grade nonwoven fabrics, at longer length. This will contribute to better margins.

Financials
DATA FY2016 FY2015 FY2014 FY2013 FY2012
REVENUE (RM’000) 83,686 79,425 72,808 68,581 58,876
OPERATING PROFIT (RM’000) 11,416 10,818 7,005 8,466 5,412
PROFIT TO SHAREHOLDERS (RM’000) 10,188 8,723 4,914 6,503 2,621
SHAREHOLDERS’ EQUITY (RM’000) 75,245 66,007 58,053 59,249 43,876
DEBT (RM’000) 28,141 26,288 21,624 22,783 24,528

RATIO

DEBT TO EQUITY RATIO 0.37 0.39 0.37 0.38 0.60
OCF RATIO 0.48 0.55 0.60 0.56 0.25
OPERATING PROFIT MARGIN (%) 13.64 13.62 9.62 12.34 9.19
PROFIT MARGIN (%) 12.17 10.98 6.75 9.48 4.45
EPS (CENTS) 4.55 4.00 2.20 2.92 1.18
EPS (ADJUSTED) CENTS 4.55 4.00 2.20 2.92 1.18
DPS CENTS 0.7 0.7 0.6 0.4 0.3
DIVIDEND PAY OUT (%) 15.38 17.50 27.27 13.70 25.42
P/E 8.64 11.13 13.18 5.31 9.32
ROE (%) 13.54 13.22 8.47 13.20 5.97

The top line of the company experienced a steady increase from RM58 million, in FY2012, to RM83 million, in FY2016. In FY2017, revenue increased to RM89 million – another milestone for the company.

There is an overall increasing trend, in profitability and profit margin, which is in line with the company’s increasing revenue. Do note that profit fell from RM10.1 million, in FY2016, to RM9.8 million, in FY2017. Further profit margin fell from 12.1%, in FY2016, to 11%, in FY2017. The reasons for the decrease are higher operating costs and transfer listing expenses.

The company does not pay an outstanding dividend because it has its eyes set on growth. I’ve discussed the advantages and disadvantages of dividend stocks [See: Dividend stocks or not? That is the question]

The company’s operating cash flow ratio, within the range of 0.50 to 0.60, is sufficient to manage its debt to equity of about 0.40.

Return on equity is respectable, at about 13%.

Cash balance and retained profits are also on the increasing trend, as per balance sheet.

Potentials

The disposable nature of hygiene products allows for a high turnover and recurring revenue. Products such as adult diapers are fast becoming modern day necessity. They are popular in Japan due to the hectic lifestyle of young carers, and the increasing aging population. The aging population in China and India could also potentially contribute to revenue in the future. However, there may be a certain social stigma attached, in societies outside of Japan, to the idea of using adult diapers. On the other hand, infant disposable diapers are already essential modern day necessity.

In the automotive front, the marriage between Geely and Proton is touted to potentially jump start the production of Proton and other Geely-related brands of cars. This collaboration is positive for Oceancash especially when Geely is planning to utilise Proton’s Tanjung Malim, as its manufacturing hub, for its cars, for exports within the Southeast Asian region. Tanjung Malim has a capacity to manufacture 1 million cars per annum and is greatly underutilised at the moment. Whatever it is, I don’t think that there will be much profit to be made in supplying parts to Proton especially when Proton had specifically requested suppliers to reduce their prices by 20%.

The general outlook in the Southeast Asian automotive industry, at least in 2018, looks bright.

Risk

Being such an export-oriented company, Oceancash’s business is affected by currency exchange fluctuations, especially USD/MYR, albeit minimal.

Further its business, especially the insulation segment, is highly dependent on the business cycle of the automotive industry.

In the Western world, makers of nappies are leaning towards biodegradables which have a smaller environmental impact than regular nappies. As the market caters to more environmentally conscious consumers, biodegradables would, in the future, be a preferred choice over regular nappies. A failure to put emphasis on biodegradable R&D would be detrimental to the company. Currently, the company has no biodegradable properties in their nonwoven fabric, as per their website.

Conclusion

Overall, I think the business-side of the company is intact and viable because of its association with modern day necessities such as cars and hygiene products.

When news broke out that Proton were to be merged or acquired by a foreign car company, the share price of Oceancash rallied in April 2017 and peaked at RM0.78 in November 2017. However, the rally has since fizzled. Share price is steadily declining, currently range-bound between RM0.51 to RM0.54. Further, last quarter’s (Q4 FY2017) lower-than-expected result added salt to injury. Nonetheless, Oceancash’s share price has declined about 35% from its peak, thus presenting an opportunity to take up a position in this company. However, I’m sticking to a wait-and-see approach and would only consider buying when its share price drops lower.

If you enjoy reading this write-up, please share and like Bursa:Going Long on Facebook for more updates and analysis of investment-related topics.

Disclosure

I do not own shares in this company.

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:
  1. http://www.oceancash.com.my/
  2. Q4 FY2017 quarterly report
  3. FY2016 annual report.
  4. FY2015 annual report.
  5. http://www.theedgemarkets.com/article/oceancash-seeks-transfer-listing-main-market
  6. https://www.thestar.com.my/business/business-news/2017/04/04/cimb-research-starts-coverage-of-oceancash-pacific/