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KUALA LUMPUR (Oct 16): Mah Sing Group Bhd rose as much as 28% this morning amid optimism that the real estate developer’s venture into the production of rubber gloves will give a new source of income.
Investment analysts tracking the stocks anticipate that rubber glove production will contribute RM100-230 million in net profit per year. Mah Sing’s valuation has been raised as analysts are valuing the group based on premium valuations of existing rubber manufacturers.
As of 11:15 a.m., the property stock had soared 21.5% or nearly 30% to 94 sen. Trading volume increased to 409.24 million shares, making it Bursa Malaysia’s most traded window in the morning session.
Among bullies, RHB Research Institute raised its price target (TP) for Mah Sing to RM1.28 from 91 sen, while MIDF Research revised its TP to RM1.10 from 82 sen previously.
RHB analyst Loong Kok Wen said the rubber glove business would add resistance to Mah Sing’s cyclical gains from real estate development.
“Next year’s earnings are likely to see a big jump as earnings from the glove business begin to take effect,” Loong said, raising his earnings forecasts for the financial year ending December 31, 2021. (FY21) and FY22 by 56% and 126%. respectively.
“Based on ASP management guidance (median sale prices) of US $ 80 (RM332.48) -US $ 160 and a cost of US $ 25-US $ 27 / box of 1,000 pieces, we estimate that your earnings net FY21-22 approximately RM100 million and RM230 million [respectively], contributing 37% to 56% of the group’s total earnings, ”Loong wrote in a note today.
Loong expects Mah Sing to make a net profit of RM274 million for fiscal year 21 and US $ 415 million for fiscal year 22, which translates to earnings per share (EPS) of 11 sen for fiscal year 21. and 16 sen for fiscal year 22.
For the valuation, he used Rubberex Corp (M) Bhd as the standard, given the similar production capacities of the two. Loong valued Mah Sing’s rubber glove business at a price-to-earnings ratio (PER) of 15 times.
Meanwhile, MIDF Research analyst Jessica Low Jze Tieng commented that the adventure in glove making could attract glove bulls to Mah Sing, as the current valuation of the group is “undemanding at a PER of five times FY 21 EPS, compared to higher valuations from the largest glove manufacturers.
Low anticipated the contribution of glove manufacturing profits to “more than double” Mah Sing’s profits for fiscal year 21, as the group aims to sell gloves at a much higher cash order price than the contractual price.
“We estimate glove manufacturing will contribute more than RM150 million in profit for fiscal year 21 based on a conservative $ 60 / 1,000 piece cash order price versus the current $ 80 cash order price at $ 160 for 1,000 pieces, “Low wrote in his note.
It increased its profit forecast for fiscal year 21 by 152% to RM266.5 million after entering the contribution to earnings from glove manufacturing and EPS of 13.2 sen.
Low said MIDF had revised its TP for Mah Sing to RM1.10 of 82 sen, as it changed its valuation method to the sum of the parts (SOTP) based on the realizable net asset value (RNAV) to better reflect the value of Mah Sing with significant contributions from its glove and property segments.
Meanwhile, Hong Leong Investment Bank (HLIB) research analyst Andrew Lim Ken-Wern agreed that the proposed diversification would allow Mah Sing to tap into the glove business with positive long-term industry outlook and additional demand. for the Covid-19 outbreak.
Ideally, Lim said the group could leverage its expertise in the regional plastics business to synergize with this potential company.
However, Lim did not revise his earnings forecasts, keeping his TP at 85 sen based on an unchanged 60% discount to RNAV of RM2.14.
“We keep our forecasts unchanged for now, awaiting further solidification of the plans. We see a potential hike in our earnings forecast for fiscal year 21-22, ”he said.
“Our ‘buy’ call is based on the commendable acceptance of their recent launches and their 1.1x coverage ratio to provide earnings visibility, along with positive sentiment associated with their foray into gloves.
“We see value in the stock, since it has a P / B valuation price (price-book value) of 0.5 times (-2 standard deviation [SD] of its five-year average) and less than its GFC (global financial crisis) of 0.68 times ”, he added.
Read also:
Glove Maker Maintains Cement Dominance in Malaysia as Virus Rises
Property developer Mah Sing becomes a manufacturer of rubber gloves
Mah Sing says explore the manufacturing division list
Mah Sing to diversify into glove manufacturing
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