• Maintain BUY and SOP-derived TP of MYR1.13, 74% upside with c.3% FY24F yield. We expect MGB’s 4Q23 core earnings to grow YoY to MYR10- 12m (4Q22: MYR3.8m) amidst higher progress billings from jobs particularly coupled with conducive labour conditions, and manageable raw material prices. As such, FY23 earnings could triple YoY to c.MYR47m (FY22: MYR15m). Looking ahead, we think that better progress on existing jobs in KITA@Cybersouth and Idaman projects should drive FY24 earnings growth.

• Wins first pre-cast order overseas. Separately, MGB announced its first pre- cast order from Saudi Arabia worth SAR94.5m (MYR119.5m) via a contract between SANY Alameriah Industrials (SA) and SALD Industrial Company. MGB is to supply and install c.60k cu m 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 (likely in 2Q.)

• Key salient terms previously agreed under the JV agreement between MGB and SA is for SA to secure a minimum of 270k cu m of precast concrete products within three years from the commencement date (Jan 2024). SA also has to secure a minimum order of 90k 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 90k cu m.

• Overall estimated pre-cast Saudi Arabia venture contribution. We believe that the total volume of precast concrete products supplied could reach 300k cu m (vs minimum of 270k cu m) over the 3-year period agreed, underpinned by the robust demand for housing in the country (particularly under the Sakani housing programme, which offers affordable options). As such, the potential value attributable to MGB is c. MYR375m (assuming a 45% share of contract value to MGB, a price of SAR2k per cu m and a SAR/MYR rate of 1.25. From this, we expect to see earnings accretion of MYR23.6m over the 3-year period, with a 7% PAT margin assumed.

• No changes made to our earnings estimates as the latest pre-cast order is within our order replenishment target of 90k cu m for FY24 (which is the first out of three years under the agreement between MGB and SA). As such, our SOP-derived TP is unchanged at MYR1.13 which bakes in a 0% ESG premium.

• Valuation. With MGB’s precast venture in KSA to take off in addition to the possibility of the group scoring more affordable housing jobs in Selangor beyond the current 7.2k units – 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 (where it already has the Laman Bayu (Batu Pahat) and Pangsapuri Saujana Indah (15km from Johor Bahru’s customs and immigration checkpoint) developments). Key downside risks include a deceleration in property project launches and sluggish precast purchase orders.

Source: RHB Research - 9 Feb 2024