Mah Sing Group Bhd’s unit joint venture (JV) agreement with its long-time Indonesian plastics distribution partner is an overall positive step for the group’s plastics venture in Indonesia but may not be a meaningful contributor to group’s earnings in the near term.
In its Company Update today (Jan 24), Kenanga Research said that the JV seeks to synergise Mah Sing’s unit, Mah Sing Plastics Industries Sdn Bhd’s manufacturing capabilities with its partner’s wide distribution network to better penetrate the growing plastic pallets market in Indonesia.
The JV for more than 10 years with PT Gaya Sukses Mandiri Kaseindo (PT Gaya) under 70:30 arrangement is to jointly engage in the manufacturing and trading of plastic pallets, containers, and related material handling and storing products in Indonesia.
“This is intended to enable the group to dedicate its efforts in expanding its production capacities in Indonesia while relying on PT Gaya’s expertise in tapping into its wide existing distribution network there (PT Gaya does not have existing plastics manufacturing facility).
“We are positive on the deal as it allows Mah Sing to tap into a growing market opportunity, especially with Indonesia expected to see strong economic prospects in the near term.
“That said, we do not expect meaningful contributions from the segment in the near-term as it is perpetuated by losses, dragged by the group’s glove division,” it said.
Kenanga keeps OUTPERFORM call, its target price (TP) of RM1, based on an unchanged 50% discount to RNAV, which is below the industry’s average of 55%.
“This is to reflect its significant exposure to the affordable high-rise segment which we believe will benefit due to higher interest rate and taxes crimping affordability in other residential types, and commercial segments that are highly sought after currently.
“There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us,” it said.
The research house likes Mah Sing for its efforts to keep its net gearing ratio in check, lifestyle-focused products providing ease of entry for first-time house buyers, and sound land bank management turnaround which minimises carrying costs.
“That said, Mah Sing is still relatively heavily exposed to high-rise residential properties which will continue to be in a state of overhang in certain regions.”
The risks to Kenanga’s call include the overhang in the high-rise segment persists, widening losses at its glove division due to persistent oversupply, and sustained elevated inflation and rising interest rates, hurting affordability.
