Mah Sing’s plastics venture in Indonesia positive, but near-term minimal
Analysts at Kenanga Investment Bank Bhd (Kenanga Research) reckoned that Mah Sing Group Bhd’s (Mah Sing) plastics manufacturing and trading venture into Indonesia is an overall positive as it allows the group to tap into a growing market opportunity, especially with Indonesia expected to see strong economic prospects in the near-term.
However, they cautioned investors that they do expect meaningful contributions from this new segment in the near-term period as it will likely be perpetuated by losses from initial investment and dragged by the group’s glove division.
To recap, Mah Sing announced on January 23 that it had entered into a joint-venture (JV) agreement with its long-time Indonesian plastics distribution partner, PT Gaya Sukses Mandiri Kaseindo (PT Gaya) to jointly engage in the manufacturing and trading of plastic pallets, Kchbp250123-rl-mahssing containers and other material handling and storing products in Indonesia.
The 70:30 JV between Mah Sing and PT Gaya is intended to enable the Mah Sing to expand its production capacities in Indonesia while relying on PT Gaya’s expertise in taping into the local existing distribution network.
According to Kenanga Research, PT Gaya has no existing plastics manufacturing facility currently.
Despite the lack of meaningful near-term contributions from this latest venture into the Indonesian plastics market, Kenanga Research is still positive on Mah Sing’s outlook as they continue to like the group’s robust property development segment which is popular among first-time house buyers due to its lifestyle-focused products and sound land bank management turnaround which minimises carrying costs.
Additionally, the research arm also notes that the group has been taking efforts to keep tis net gearing ratio in check as it demonstrated a stark improvement from 0.34-times in the first second quarter of financial year 2022 (2QFY22) to 0.13-times in 3QFY23.
Kenanga research maintains an ‘outperform’ call on Mah Sing with an unchanged target priced of RM1.00 that I based on a 50 per cent discount to its revised net asset value (RNAV), which is below the industry average of 55 per cent.
The assigned premium is to reflect the group’s significant exposure in affordable highrise which Kenanga Research believes is beneficial due to higher interest rate and taxes crimping affordability in other property segments.