What’s New

Bagged external job. MGB Berhad (MGB) has successfully secured a turnkey project to develop a 1,006.7 acres industrial park in Kertih, Terengganu. Under the deal, MGB was appointed as the turnkey contractor to undertake the entire design, financing, construction and completion, sales and marketing and credit administration of all that piece and parcel of the land measuring approximately 1,006.70 acres located in Taman Biopolimer, Kertih. The project was awarded by Retro Court Sdn Bhd, a private company owned by Datuk Hendri Dahlan and Cheah Tuck Hing.

Strategic property launch in Johor. Besides, the Group has also announced that it will take over a piece of land measuring 10558.9 sqm in Plentong, Johor from its parent company, LBS Berhad (LBS) to jointly develop it with the landowner. MGB is required to reimburse LBS for the payment of RM23m, being the amount which has been paid to the landowner earlier.

Comment

Order book replenishment to boost Construction segment. We are positively surprised with this external job win. Whilst the Group did not reveal the actual contract value, judging from the abovementioned land size of the industrial estate, we opine that the development value could be sizeable and over many launching phases. We believe this is one of the job win out of its current tender book of c.RM1b (mainly government projects such as infrastructure and buildings). MGB currently boasts RM1.9b of outstanding construction orderbook (excluding the above project) which will underpin its earnings visibility for the next 2-3 years.

Imminent landbank replenishment to effect its quick turnaround strategy of Property Development. LBS intends to streamline its business by focusing on the development of townships, whilst MGB will focus on all developments involving individual development lands which are smaller in development area. With an estimated GDV of RM366.5m of the development, we expect the project to contribute positively to the Group’s earnings stating 2022F with its target launch next year.

Strategic landbank…... We are optimistic on the project as it is strategically located in Johor. The development land is located in Plentong where the electrified commuter rail and the LRT/ intersect. With future transportation stations to be constructed and other amenities, there is ample opportunity for the proposed development to meet expectation and remain attractive for potential purchasers. Plentong is considered as one of the best housing area in Johor between the upscale neighbourhoods of Taman Molek, Mount Austin, Daiman and Senibong Cove.

…….. with attractive product pricing. The proposed development comprises of 2 fully residential apartment blocks comprising of 988 units. The units to be developed, are selling from RM313,000 onwards which falls within the affordable housing segment. This incentivizes potential purchasers who are looking to purchase property in a upscale neighborhood at affordable rates, and will facilitate sales of the project.

Earnings Outlook/Revision

No change to our net earnings forecasts of RM34.7m (+147.6% yoy growth) for 2021 and RM66.2m (+90.9% yoy growth) for 2022.

Valuation & Recommendation

Maintain BUY with an unchanged target price of RM1.15. Our target price is derived by ascribing a 10x PER to the Group’s 2022F diluted EPS (after conversion of 90m ICPS). This is in line with other mid and small-cap construction and property companies which are currently trading at 7-10x forward PE.

We favour the stock for: 1) Benefiting from the affordable residential market segment which is relatively unfazed by the prevailing supply-demand imbalance; 2) Serving a niche market with high entry barrier as the Group commands cost advantage in constructing affordable housings, mainly leveraging on its expertise and scale in IBS; 3) Sizeable construction outstanding order book of RM1.9b as well as a whopping RM1.1b Rumah Selangorku Idaman (RSI) worth of property launches targeted in 2H21 onwards; 4) Earnings are back to growth trajectory as the Group is expected to attain 2021F and 2022F bottom line growths of 147.6% and 90.9% yoy on the back of its top line growths of 44.6% and 53.0% yoy respectively; and 5) Backed by an established major shareholder, LBS Bina Group Berhad with expected continuous orderbook replenishment as well as chances of tapping into LBS’ strength and resources.

Source: JF Apex Securities Research - 20 Sept 2021