Results

Result broadly within expectation. MGB Berhad (MGB) achieved 3Q21 net profit of RM2.1m, which slumped 63.8% yoy and 51.2% qoq on the back of lower revenue, - 32.7% yoy and -12.2% qoq. For 9M21, the Group chalked up RM16.5m net profit, up 89.7% yoy, which accounts for 61% of our full year net earnings estimate. Still, we deem the result is in line with our expectation as we envisage its 4Q21 result to rebound strongly to achieve our full year net profit of RM27m.

Comment

Lockdown weighed on yoy and qoq results. The weaker yoy performance was mainly due to lackluster showings posted by its Construction and Property Development as a result of lockdown in order to curb Covid-19 pandemic. During Full Movement Control order (FMCO) and Enhanced Movement Control Order (EMCO), all business activities were completely halted and no construction works were allowed to be carried out (suspension of work for approximately 1.5 months in July-Aug). Likewise, the abovementioned reason also dragged down its qoq performance in addition to the timing difference of progress billings as several projects have been substantially completed in 2Q21 and few secured projects were still at their planning and design stages.

Expecting better 4Q21. We expect the Group to have a meaningful pick up in construction progress in 4Q21 after the relaxation of movement restriction. Besides, the new launch of Laman Bayu Phase 3 and 4 are expected to further boost its 4Q earnings.

Robust outstanding orderbook and unbilled sales underpin earnings visibility. As of Oct 21, MGB has an outstanding construction orderbook of RM1.2b and property unbilled sales of RM20.3m. Meanwhile, the Group’s current tender book is c.RM500m, mainly stemming from government projects (infrastructure works and government buildings).

Encouraging response for the Rumah Selangorku Idaman (RSI) projects. The Group has launched its six RSI projects in end Oct 21 with projects are strategically located in the Klang Valley. We understand that MGB has received a total of c.3500 new registration since its soft launch.

Earnings Outlook/Revision

No change to our net earnings forecasts of RM27m for 2021F, RM54.5m for 2022F and RM84.5m for 2023F.

Valuation & Recommendation

Maintain BUY with an unchanged target price of RM1.05. Our target price is derived by ascribing 11x PE multiple to the Group’s 2022F diluted EPS (after conversion of 90m ICPS) which is in line with its 2-year historical mean 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; and 3) Backed by an established major shareholder, LBS Bina Group Berhad with expected continuous order book replenishment as well as chances of tapping into its parent company’s strength and resources.

Source: JF Apex Securities Research - 19 Nov 2021