This article first appeared in Capital, The Edge Malaysia Weekly on September 4, 2023 - September 10, 2023

Target price: 79 sen ADD

CGS-CIMB RESEARCH (AUG 28): Mah Sing Group Bhd reported a 2QFY23 core net profit (excluding impairment, forex gain and gain on redemption of financial assets) of RM47 million (+9% y-o-y; -5% q-o-q), taking the full-year core net profit to RM96.6 million (+12% y-o-y). This is largely within expectations, as it accounts for 47% of our full-year forecast and 51% of the Bloomberg consensus’ FY23F estimates. As expected, no dividend was declared during the quarter.

Mah Sing achieved property sales of circa RM600 million, taking 1H23 property sales to RM1.2 billion (1H22: RM1 billion; +20% y-o-y). About 77% of sales came from the central region, driven by its M series products, namely M Astra in Setapak, M Senyum in Sepang and M Vertica in Cheras.

Given the strong sales momentum and appetite for affordable homes, we believe Mah Sing is on track to achieve its full-year sales target of RM2.2 billion. Some 65% of Mah Sing’s products are priced below RM500,000 and 96% are below RM700,000.

In August, Mah Sing launched M Nova, with prices starting from RM328,000 for 700 sq ft units. Management guided that it has already secured a 90% take-up rate. Unbilled sales stood at RM2.34 billion as at June 30 (circa 1.2 times the cover ratio).

As at end-July 2023, Mah Sing had secured four pieces of land, three of which are earmarked for the quick turnaround M series development, for a total of 589 acres and RM5 billion in gross development value (GDV): (i) M Terra and M Hana in Puchong (total of eight acres); (ii) M Tiara in Johor Baru (75.7 acres); (iii) Glengowrie Estate in Semenyih (500 acres); and (iv) M Zenya in Kepong (4.88 acres).

The land acquisitions bring Mah Sing’s landbank to 2,423 acres and remaining GDV to RM25.2 billion. We make no changes to our earnings forecasts or target price of 79 sen per share. We reiterate “add” for its attractive product price points, strong balance sheet position (0.12 times net gearing as at June 2023) and strong sales momentum.

Target price: RM1.32 OUTPERFORM

KENANGA RESEARCH (AUG 29): LGMS Bhd’s 1HFY23 earnings of RM5.2 million (-15.7% y-o-y) accounted for 37% of both our full-year forecast and the full-year consensus estimate. We deem the results to be largely within expectations as we anticipate better earnings delivery in the quarters ahead.

The group has embarked on a journey to realign its portfolio, optimising its resource allocation to yield better revenue recognition. The shift has already demonstrated its impact in the reported quarter and is expected to continue to benefit subsequent quarters.

Additionally, LGMS has introduced “StarSentry”, a plug-and-play device that seamlessly connects to users’ networks, autonomously analysing all connected devices for vulnerabilities. Notably, LGMS’ StarSentry was awarded the Cyber Security Product Innovation of the Year at the recent Cyber Digital Services Defence & Security Asia (CyberDSA) 2023. This product, tailored for SMEs seeking cost-effective and straightforward security solutions, is poised to contribute positively to the group, with a more meaningful impact in FY24.

We like LGMS for its unique exposure to the growing cybersecurity business, the deep moat around its business given the high barrier to entry created by the tough qualification process as a vendor and its new proprietary certification software which is expected to be its next earnings driver.

Target price: RM4.60 BUY

MIDF RESEARCH (AUG 29): We attended Padini Holdings Bhd’s virtual briefing and remained optimistic about its FY24’s outlook. The salient highlights include Padini’s high inventory level in 4QFY23. The inventory for 4QFY23 was at RM433.2 million compared to RM137.3 million in 4QFY22. Management highlighted that the impact of slightly higher inventory is manageable, with an inventory turnover of around four months (143 days as at 4QFY23).

In 4QFY23, same-store sales growth decreased by 2%, a notable contrast to the 41% same-store sales growth seen in 3QFY23. However, SSSG for the full year, 12MFY23, increased by 29%.

Average basket size (ABS) remained relatively stable in 4QFY23, with the blended ABS at approximately RM100 per basket, similar to 4QFY22. Meanwhile, ABS for free-standing stores ranged from RM80 to RM90 in 4QFY23.

Padini’s gross profit margin increased from 38.5% in 12MFY22 to 39.4% in 12MFY23. This was primarily due to price hikes on certain products over the years. Looking ahead, management aims to maintain the gross profit margin in the range of 38%-39% so as to stay competitive in pricing while retaining customers.

Fair value: RM2.67 BUY

AMINVESTMENT BANK RESEARCH (AUG 29): We maintain “buy” on Power Root Bhd with an unchanged fair value of RM2.67 per share, based on FY24 PE of 18 times, 0.5 standard deviation below the group’s three-year average of 21 times and on a par with the food and beverage (F&B) sector mean. We make no adjustment to our neutral ESG rating of three stars.

Moving forward, we expect earnings to be sustainable on the back of: (i) enhanced cost control strategies for raw materials such as sourcing from alternative suppliers and adjusting specific stockkeeping units to counter the impact of the sugar tax on instant power products; and (ii) better operational efficiency such as streamlining sales and marketing processes through digitalisation and upgrading manufacturing processes. This will lead to reduced reliance on labour and improved production output.

We continue to like Power Root for its: (i) strong export potential from its new distributor Abbar & Sons Food Co for the Saudi Arabian market and joint venture with Thailand’s Sappe PCL; and (ii) its well-diversified beverage portfolio which will sustain export growth.

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