Kenanga Research said it was positive on the Indonesia deal as it allows Mah Sing to tap into a growing market.
PETALING JAYA: Mah Sing Group Bhd
’s expansion into plastic manufacturing in Indonesia will have a minimal impact on its earnings in the near term.
The plastic segment currently has a pre-tax profit margin of 7%-8% and the Indonesian venture is expected to have a similar cost structure as Malaysia.
The additional 10% capacity from the expansion is expected to increase the group’s earnings by around RM1.96mil a year or 0.08 sen earnings per share (EPS), which is 0.98% of the company’s financial year 2024 (FY24) earnings forecast, said Hong Leong Investment Bank Research (HLIB Research).
The research house said the earnings impact is quite minimal and has kept its forecasts unchanged.
Mah Sing partnered with its long-time partner Indonesian firm PT Gaya, to expand its plastic pallet manufacturing in Indonesia under a joint venture structure (Mah Sing: 70%, PT Gaya: 30%).
The move aims to address production strain in Malaysia, meet growing demand in Indonesia, capitalise on global interest in environmentally friendly plastic pallets and enhance overall operational efficiency, said HLIB Research.
The Indonesian factory will initially add three injection machines that will raise capacity 10%, with plans for future expansion.
The total capital expenditure for the venture is RM40mil, with Mah Sing contributing RM28mil, the research house said, adding that the regional expansion supports Mah Sing’s target to list its manufacturing segment within three years.
Meanwhile, Kenanga Research said it was positive on the deal as it allows Mah Sing to tap into a growing market, especially with Indonesia expected to see strong economic prospects in the near term.
The research house also does not expect meaningful contributions from the segment in the near-term as it is dragged down by the group’s glove division.
It has kept the stock’s target price (TP) at RM1 a share with an “outperform” call. HLIB Research has the same TP price with a “buy” call.
Kenanga Research noted it likes Mah Sing for its efforts to keep its net gearing ratio in check, with a third quarter financial year 2023 (3Q23) reading of 0.13 times being lower compared with 0.34 in 2Q22.
Besides this, the company’s plastic-furniture products are affordable and targeted at the mass market, while its property arm is practising sound land bank management which minimises carrying costs.
That said, Mah Sing is still relatively heavily exposed to high-rise residential property, which continues to see oversupply in certain regions.
The risks to analysts’ calls on the company include the overhang in the high-rise property segment persisting, widening losses at its glove division due to persistent oversupply, and sustained elevated inflation and rising interest rates hurting affordability.
