MGB Bhd is expected to continue charting a solid growth of more than 20% in the fiscal year of 2024 (FY24), backed by higher progress billings of certain projects, according to RHB Investment Bank (RHB IB).
“Particularly, KITA @ Cybersouth project, are moving higher along the S-curve. This is in addition to its expected maiden contribution from the precast business in Kingdom of Saudi Arabia (KSA),” it said in its Results Review today (Feb 20).
Post-results, the research house stays BUY call, and Sum of Parts (SOP)-target price (TP), 30% upside and 2.5% FY24F yield.
RHB IB said the construction firm’s FY23 core earnings of RM47.9 million, an surge of more than 100% year-on-year (YoY) met its and Street’s estimates at 99% and 100% of full-year projections.
“Its FY23 core earnings were partly backed by robust construction revenue growth of 45% YoY from projects such as Idaman Bandar Saujana Putra, KITA Mekar, Prestige, and KITA Sejati.
“In the same vein, the property development arm saw more than 100% jump in revenue during 4Q23, backed by sales of Idaman Melur, 61% sold, Idaman Cahaya, 76% sold, and Idaman Sari, 90% sold.
“As such, PBT margins of the property arm grew in tandem to reach 16.1% in FY23 compared to 13.5% in FY22,” it said.
MGB’s outstanding orderbook of RM1.1 billion as of end 4Q23 includes four jobs with cumulative contract value of 635 million related to LBS Bina’s key township development, KITA@Cybersouth.
As such, RHB IB said MGB continues to be seen as a frontrunner for LBS Bina’s upcoming projects under the KITA@Cybersouth development. Its ongoing four projects under this township makes up RM295 million or 26% of the group’s outstanding construction orderbook.
“We also believe LBS Bina’s plan to launch 10 projects with a total gross development value (GDV) of RM2.3 billion in 2024 across the Klang Valley, Pahang, and Johor should also benefit MGB’s job replenishment prospects,” it said.
The research house said it makes no changes to its earnings estimates as they were within expectations.
“We also introduce our FY26F earnings with an annual job replenishment target of RM500 million – backed mainly by LBS Bina-related contracts.
“All in, our sum of parts (SOP)-derived target price (TP) remains unchanged at RM1.13, with the construction arm pegged to an unchanged
target P/E of 12 times.
“We deem this justified amidst upcoming launches by LBS Bina and the growth in KSA’s housing sector. Our TP also bakes in in a 0% ESG
premium/discount based on MGB’s ESG score of 3,” it said.
With MGB’s precast venture in KSA, in addition to the possibility of the group scoring more affordable housing jobs in Selangor beyond the current 7,200 units, the research house said the valuations are undemanding, as its 8 times FY25F price-earning ratio (P/E) is -1SD below its 5-year mean.
It added catalysts include developing new property projects in Johor, as MGB already has two projects in the state – Laman Bayu (Batu Pahat) and Pangsapuri Saujana Indah, which is 15km from Johor Bahru’s customs and immigration checkpoint).
Key risks of RHB IB’s call include an unexpected slowdown in the property market and slower-than-expected precast orders in KSA.
