MGB, via MGB International For Industry (MGBI), its subsidiary in the Kingdom of Saudi Arabia (KSA), recently entered into a JV agreement (JVA) with SANY Alameriah Industrial (SA).
“The JVA presents a platform for MGB to collaborate with SA on the supply and installation of precast concrete products and the operation of the precast manufacturing plant. Key risk is a slowdown in the property market,” said RHB Research (RHB) in the recent Malaysia Company Update Report.
Under the JVA, SA plans to secure a minimum of 270k cu m of precast concrete products within three years from the commencement date, the date when MGBI and SA have fulfilled the obligations under the JV within the 90-working day period from 27 July.
SA will also handover the precast manufacturing plant to MGBI and grant exclusive rights to MGBI to use and operate the plant. Other salient terms include SA having an obligation to secure a minimum order of 90k cu m of precast concrete products within a year from the commencement date. Separately, MGBI will inject RM12-24m of working capital to operate the factory.
“We opine that the total volume of precast concrete products supplied could reach 300k cu m over the three year period underpinned by KSA’s robust demand for housing,” said RHB.
As such, the potential value attributable to MGB is RM324m. Bottom-line wise, RHB Research expects an earnings accretion of RM22.7m over the three year period. Timeline wise, RHB expects contribution from the precast venture to come in after 1H24.
According to management, construction progress for Idaman Bandar Saujana Putra (BSP) reached 51% completion with a sales conversion rate of nearly 100%, roughly within RHB’s projections.
“Meanwhile, the Idaman Melur project reached a sales conversion rate of 40%, quicker than our initial estimates of 40% sales conversion rate by the end of FY23,” said RHB, further stating a Target Price of RM1.00 and Buy rating.
Impact from political risks is also low as affordable housing projects would be in the best interest of any administration.
