PETALING JAYA: Mah Sing Group Bhd’s margins are expected to remain resilient despite the rising raw material costs.

       “Contractors, who have a long-term relationship with the group, are less likely to pass on the additional costs to the developer as the contracts had already been signed (earlier),” said AmInvestment Bank Research (AmInvest).

       The brokerage noted that the rising costs of steel, tiles and sanitary items would not have an impact on its projects since the corresponding sub-contracts had been awarded earlier. It also noted that specifications of future project launches could be adjusted for any inflation in raw material costs.

       “We also understand that the current construction environment remains lacklustre due to the lack of major rollouts of public infrastructure projects. Thus, we believe property developers, including Mah Sing, have more bargaining power on the bidding price for their future developments at this stage,” AmInvest said.

       The research house upgraded Mah Sing to a “buy” from a “hold” rating. It noted that Mah Sing’s share price decline over the past six months offered a higher upside potential to its unchanged sum of parts-based fair value of 95 sen per share.

       The stock currently trades at 11 times the financial year 2021 (FY21) price-earning ratio (PE) compared to its five-year average of 12 times.

       “We have a neutral environmental, social and governance rating of three stars for Mah Sing. And we are keeping our forecast FY21 earnings expectations, pending the company’s third-quarter results, which will be announced by end-November,” the research house said.

       Following an update from the company, AmInvest said that Mah Sing’s construction progress was back to full force in September, and it was confident that the projects would be mostly delivered on time, as the group usually had a six-month buffer period in its construction arrangements with contractors versus handover to home buyers.

       “Also, under the Temporary Measures for Government Financing (Coronavirus Disease 2019 (Covid-19) (Amendment) Act 2021, the handover of vacant possession can be extended if it is due to delays caused by movement control orders. Hence, the possibility of being charged with liquidated ascertained damages is minimal at this stage,” it said.

       Commenting on its rubber glove business, the research house has also maintained its revenue projection of RM122mil for FY21 based on a plant utilisation rate of 15% and an average selling price (ASP) of gloves at US$52 (RM217) per 1,000 pieces.

       “For forecast FY22, we have also not changed our assumption of the plant utilisation rate of 50% and ASP of US$34 (RM142) per 1,000 pieces, which translates to a revenue of RM250mil,” it said.

       “Mah Sing reiterated its plan of listing the manufacturing arm which consists of the plastic division and glove business within the next five years, probably on the Hong Kong stock exchange. In the first half of FY21, the plastic division contributed 21% of the group’s revenue and 10% of its pre-tax profit,” it added.