Malaysian Generations Builder (MGB) has undergone several corporate restructuring exercises before it concentrated on building affordable residential homes. Post-2017, the Group consistently replenished its orderbook by at least RM700m on average per annum and has maintained low gearing for the past 5 years. While the demand for affordable housing continues to outstrip supply, we think MGB is well positioned to benefit from this market segment. All in all, we like MGB for its niche in building affordable homes via the usage of Industrialised Building System (IBS) precast concrete products, coupled with a few potential jobs from Kertih Terengganu Industrial Park (KTIP) and SANY Alameriah. Effective Feb 2021, the Group adopted a formal dividend policy to pay at least 20% of net profit annually. Thus, we expect the Group to declare a total of 1.7sen dividend per share in FY23F. We initiate coverage on MGB with an Outperform call and a SOTP derived TP of RM1.03, translating to an implied PER of 8x. We believe the PE ascribed is justifiable as it is within comparable market capitalizations against its peers. As for the property segment, we applied no discount to its RNAV, which is justifiable given that its projects are mainly affordable homes located in lower density areas.

• More job wins in FY23. As of 1QFY23, the Group has an outstanding orderbook of RM1.83bn, noting a 10% growth YoY albeit 2.9% lower than FY21’s record-high of RM1.88bn. Going into 2023, we expect to see higher job wins from both internal and external parties as demand for affordable housing remains upbeat amid macroeconomic challenges.

• Potential earnings from IBS. The Group, on Jan 2023, has entered into a Memorandum-of-Understanding (MOU) with SANY Alameriah to install 10,000 units of properties in Saudi Arabia under the Sakani housing programme within 5 years. From the announcement, we expect contribution from IBS installation to add approximately 30% on average to MGB’s bottomline in 2024-2025, should the MOU materialize. To note, we have yet to account for earnings from this MOU into our forecast pending material agreement by 2QFY23 upon its expiry in June 2023.

• Earnings outlook. We are projecting MGB’s FY23F core earnings to rise >100% YoY on the back of higher progress billings in construction (+69% YoY) coupled with lower operating expenditure due to improved IBS efficiency. However, excluding pandemic years, 12MFY22 revenue slumped 19.3% in comparison with 12MFY19 as the Group’s operations was battered by sector headwinds such as labour shortage and volatile building material prices. Moving into FY23F, core earnings are expected to grow >100% YoY attributed to an RM500m orderbook replenishment assumption and RM450m property sales target.

Source: PublicInvest Research - 6 Jun 2023