• Still BUY, with SOP-derived MYR1.16 TP, 38% upside and c.2% FY24F yield. MGB’s 1Q24 core profit of MYR14.1m (>+19% YoY) met ours and Street’s estimates at 25% and 24% of full-year projections. We expect MGB to continue charting a solid growth of >10% in FY24F, backed by higher progress billings of certain projects (particularly KITA@Cybersouth) as the projects move higher along the S-curve in addition to better property sales growth.

• MGB’s 1Q24 core profit was underpinned by the property development arm, which recorded more than 100% YoY PBT due to higher unit sales and progress development for the Idaman Melur (78% sold), Idaman Cahaya Phase 1 and 2 (91% sold), Idaman Sari (96.5% sold), and Saujana Indah Phase 1 (42% sold). Hence, PBT margin for the segment remained strong at 18% for 1Q24. Meanwhile, the construction arm saw a 59% YoY drop in PBT for 1Q24 amidst projects nearing the tail-end ie Idaman BSP and Kita Mekar. Additionally, the group incurred start-up costs in its precast operations in Saudi Arabia.

• MGB’s outstanding orderbook of MYR1.2bn as of end-1Q24 (vs MYR1.1bn as of end-4Q23) includes four jobs (cumulative contract value: c.MYR641m) related to LBS Bina’s (LBS MK, BUY, TP: MYR0.82) key township development – KITA@Cybersouth. As such, MGB continues to be seen as a frontrunner for LBS Bina’s upcoming projects under KITA@Cybersouth. MGB’s four ongoing projects under KITA@Cybersouth township makes up MYR255.7m or 33% of its internal outstanding construction orderbook. LBS Bina’s plan to launch 10 projects with a total GDV of MYR2.3bn in CY24 across Klang Valley, Pahang, and Johor should also benefit MGB’s job replenishment prospects.

• Earnings forecast and valuation. No changes to our earnings estimates as earnings were within expectations. All-in, our SOP-derived TP remains unchanged at MYR1.16 with the construction arm pegged to an unchanged target P/E of 12x pegged to FY25F EPS (which we deem is justified amidst upcoming launches by LBS and growth in Saudi Arabia’s housing sector). Our TP also baked in a 0% ESG premium based on an ESG score of 3.

• Catalysts. With MGB’s precast venture in Saudi Arabia to take off in addition to the possibility of the group scoring more affordable housing jobs in Selangor beyond the current 7.2k units – we view valuations to be undemanding as its FY25F P/E of 7.6x is -1SD below its 5-year mean. Catalysts include developing new property projects in Johor as the group already has two projects in the state – Laman Bayu (Batu Pahat) and Pangsapuri Saujana Indah (15km from Johor Bahru’s custom, immigration and quarantine complex).

• Key risks include an unexpected slowdown in the property market and slower-than-expected precast orders in Saudi Arabia.

Source: RHB Research - 17 May 2024