May 2018 Portfolio Report

Since the last update, March 2018 Portfolio Update, my portfolio has shrunk significantly; losing almost all the gains made in the past years. This is largely contributed to the events leading up to the election and post-election. Understandably, investors, especially foreign  ones, are jittery about a change of government; the first Malaysians have seen.

sarawak State Legislative Assembly
Sarawak State Legislative Assembly. Credit to http://www.thenational.ae

Companies seen to be close or somehow related to the former government were hit the hardest. Arguably, I hold shares in two of such companies: Ekovest and CIMB. I’ve sold SIME, without much of a gain or loss, to purchase Mahsing.

COUNTER COMPOSITION (%) AVERAGE PRICE LAST PRICE GAIN/LOST (%)
3A 6.53 1.18 0.945 (19.81)
AIRASIA 30.70 2.80 3.22 15.08
CIMB 26.17 5.78 6.12 5.60
DNEX-WD 9.69 0.201 0.135 (32.98)
EKOVEST 9.71 1.136 0.585 (48.53)
EVERGREEN 5.93 0.791 0.455 (42.54)
MAHSING 3.97 1.10 1.09 (1.19)
MALAKOF 3.18 0.917 0.875 (4.68)

Portfolio gain is at 6.29%.

If you have suffered the same fate as I did, try not to dwell in the past. I believe that market jitters would eventually succumb to the competency, accountability and transparency policies, championed by the new government. We can only hope that the new government will make good on its election promises.

As for now, the market is significantly cheaper, especially many mid cap stocks. Hence, how you act upon this will determined the success of your investment.

Looking forward
  1. Malakoff dividend (3.7 cents per share); ex date on 14.05.2018, payment date on 01.06.2018.
  2. Airasia dividend (12 cents per share); ex date on 12.06.2018, payment date on 13.07.2018.
  3. Evergreen dividend (1.38 cents per share): ex date on 30.07.2018, payment date on 17.08.2018.
  4. Mahsing dividend (6.5 cents per share); ex date on 12.09.2018, payment date on 27.09.2018.

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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%.

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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:
  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/