MGB Bhd’s 4Q23 and FY23 earnings could triple year-on-year (YoY) amidst higher progress billings from jobs particularly coupled with conducive labour conditions, and manageable raw material prices, RHB Investment Bank (RHB IB) said.
In its Malaysia Results Preview today (Feb 9), the research house said it expected the construction player’s 4Q23 core earnings to grow YoY to between RM10 million and RM12 million from RM3.8 million in 4Q22.
“As such, FY23 earnings could triple YoY to RM47 million from RM15 million in FY22. Looking ahead, we think that better progress on existing jobs in KITA@Cybersouth and Idaman projects should drive FY24 earnings growth,” it said.
It reiterated its BUY call and Sum Of Parts (SOP)-derived target price of RM1.13, 74% upside with 3%.
“No changes made to our earnings estimates as the latest pre-cast order is within our order replenishment target of 90k,000 cubic meters for FY24, which is the first out of three years under the agreement between MGB and SANY Alameriah Industrials (SA),” it added.
RHB IB said with MGB’s precast venture of Kingdom of Saudi Arabia to take off in addition to the possibility of the group scoring more affordable housing jobs in Selangor beyond the current 7,200 units, the group’s deeply undervalued.
“Its market valuation of 6.3x FY24F P/E (1.5SD below the 5-year mean) is undemanding. Catalysts include developing new property projects in Johor, in addition to existing Laman Bayu and Pangsapuri Saujana Indah,” it said.
MGB’s indirect wholly-owned unit MGB International for Industry (MGBI) has win its first precast order, totalling approximately 94.5 million riyals (RM119.55 million), from Saudi Arabia-based SA.
The order was via a contract SA and SALD Industrial Company. MGB is to supply and install 60,000 cubic metres of precast concrete products for 400 units of villas for a development called Roshn Alarous in North Jeddah.
The scope to supply and install the precast elements shall be completed within 14 months from the start date.
The research house said the key salient terms previously agreed under the JV agreement between MGB and SA is for SA to secure a minimum of 270,000 cubic metres of precast concrete products within three years from the commencement date of January 2024.
“SA also has to secure a minimum order of 90,000 cu m of precast concrete product orders in the first year from Jan 2024. Therefore, SA has already clinched two-thirds of the minimum precast products order of 90,000 cubic metres.
“We believe that the total volume of precast concrete products supplied could reach 300,000 cubic metres versus minimum of 270,000 over the 3-year period agreed, underpinned by the robust demand for housing in the country.
“As such, the potential value attributable to MGB is RM375 million, assuming a 45% share of contract value to MGB, a price of SAR2k per cu m and a riyal and ringgit rate of 1.25.
“From this, we expect to see earnings accretion of RM23.6 million over the 3-year period, with a 7% profit after tax (PAT) margin assumed.”
Key downside risks to its call include a deceleration in property project launches and sluggish precast purchase orders.
