• Still BUY, new MYR1.13 TP (SOP) from MYR1.10, 69% upside and c.3% FY23F yield. 9M23 core earnings of MYR36m (>100% YoY) exceeded our and Street’s estimates at 82% of full-year projections. The positive deviation was due to the better-than-expected performance of the property division. We expect MGB’s FY23 earnings to triple, backed by better labour conditions and higher progress billings of certain projects, particularly KITA@Cybersouth- and Rumah Selangorku Idaman (RSI)-related projects.

• MGB booked a 3Q23 core profit of MYR12.4m (3Q22: MYR4.1m), partly backed by robust construction revenue – mainly by the Idaman BSP, Kita Mekar, Prestige, and Kita Mesra projects. Likewise, the construction segment’s 3Q23 PBT margin stood at 6.2% (3Q22: 3.6%). During this period, the property development arm saw a >100% jump in revenue during 3Q23, backed by sales at Idaman Melur (50% sold), Idaman Cahaya (58% sold), and Idaman Sari (73% sold). As such, PBT margins of the property arm grew in tandem – reaching 14.6% (3Q22: 4.1%).

• MGB’s outstanding orderbook of MYR1.9bn as of end 3Q23 (earnings visibility of up to three years) includes five jobs (cumulative contract value: c.MYR760m) related to LBS Bina’s (LBS MK, BUY, TP: MYR0.56) key township development: KITA@Cybersouth. As such, MGB continues to be seen as a frontrunner for LBS’ upcoming projects under the KITA@Cybersouth banner. Its five projects for KITA@Cybersouth makes up MYR382m or 20% of MGB’s outstanding construction orderbook.

• Earnings forecast. As earnings exceeded expectations, we are revising our FY23F-25F bottomline by +8%, +3%, and +2% after: i) Bumping up our property sales forecast (which was previously too conservative) and ii) incorporating faster progress billings for certain construction projects, eg Idaman BSP. Therefore, we arrive at a new SOP-derived TP of MYR1.13 after factoring in a 0% ESG premium/discount based on our proprietary inhouse ESG methodology.

• The stock deserves a BUY call due to its undemanding valuation of 6.7x FY24F P/E (-1SD below its 5-year mean P/E). We believe this is unjustified, premised on the group’s potential of scoring more affordable housing jobs (exceeding the current 7,210 units under the RSI project) as the Selangor Government targets to build 60k housing units by 2025. Additional catalysts may come from: i) Faster-than-expected earnings contributions from the precast business in Saudi Arabia (base case from 2H24 onwards) and ii) potential involvement in the Residensi Wilayah and Residensi Prihatin Madani affordable housing projects at Sungai Besi, which comprise 1,010 units in total.

• Key risk: An unexpected slowdown in the property market.

Source: RHB Securities Research - 21 Nov 2023