MGB’s core net profit grew marginally by 0.5% QoQ but surged >100.0% YoY in 2QFY23 attributed to better performance of its construction division. The construction division recorded 22.1% PBT growth QoQ due to higher billings, coupled with higher cost savings as certain projects have achieved completion during this quarter. Nevertheless, 1HFY23 core net profit is above our and consensus estimates, accounting for 67.8% and 69% of the full year estimates. We lifted our earnings forecast by 19% on average per annum over FY23-25F to account for higher-than-expected billings progress from its ongoing construction projects as work efficiency has been restored to pre-pandemic levels. We retain our Outperform call with a revised SOTP derived TP of RM1.15 (previously RM1.12) pegged at 8x PER, below 15x PER sector average, given MGB’s smaller size.

• Topline advanced 30.8% QoQ. The Group’s construction division added 30% QoQ due to higher billing progress for its ongoing projects, mainly from Kita Mekar, Kita Mesra and Idaman BSP project. That aside, its property segment has also climbed 46.4% QoQ contributed by higher property sales during the quarter especially from Idaman Melur and Idaman Cahaya which achieved about 40% and 35% take-ups respectively.

• PBT increased marginally by 4.9% QoQ, dragged by the property division due to low sales margin of affordable house in addition to the absence of one-offs amounting to c.RM1.5bn. Construction division, on the other hand, improved 22.1% QoQ as certain projects have achieved completion during this quarter i.e.: Mercu Jalil & Bandar Saujana Putra flyover, which resulted in higher cost savings.

• Outlook. We anticipate more to come for MGB in terms of job wins within its construction division. The Group YTD new wins represent 40.2% of our FY23 orderbook replenishment assumption of RM500m. Apart from that, we are also expecting the first contract award from Sany Alameriah Industrial to supply and install precast concrete products by 4QFY23. As for property division, there will be two upcoming launches – Idaman Sari in 3QFY23 and Cameron Highland, Pahang in 2QFY24 with a combined GDV of RM253m.

Source: PublicInvest Research - 21 Aug 2023