Results

• Results within expectation. MGB Berhad (MGB) posted 4Q21 net profit of RM10.5m, which soared 87.5% yoy and 400.0% qoq on the back of higher topline, +3.8% yoy and +69.7% qoq. For full year 2021, the Group chalked up RM27.0m net profit, surging 88.8% yoy, which accounts for 100% of our full year net earnings estimate.

Comment

• Stronger yoy…... The better yoy net profit growth was mainly underpinned by Construction & Trading segment (segmental revenue: +16.7% yoy; segmental PBT: 193.0% yoy) as construction activities operated in full capacity and extra resources was put in place to boost up the momentum during the quarter without the interruption of movement control order. Also, the improvement in 4Q21 margins arising from completed and on-going projects with strict cost control measures, negotiation strategy and implementation of Industrialised building solutions (IBS) solutions amid prevailing shortage of skilled labour and fluctuations in raw material prices.

• …….and qoq results. MGB also achieved better qoq performance thanks to its Construction (segmental revenue: +69.8% qoq; segmental PBT: 207.3% qoq) and Property Development (segmental revenue: +70.0% qoq; segmental PBT: 416.7% qoq) divisions following the reopening of all economic sectors as EMCO imposed in Selangor state ended in middle of July 2021. The Group’s Construction segment boosted its momentum in its ongoing projects such as Residensi Bintang and Mercu Jalil at Bukit Jalil and Melodi Perdana at Alam Perdana which are targeted to complete by 2022. Projects secured were also at their smooth construction stages as opposed to planning stage in early of 2021.

• Declaring first interim dividend of 0.422 sen/share to reward long-term shareholders. The Group has proposed a first interim dividend of 0.422 sen/share to reward its shareholders. This is in line with its earlier proposal of formal dividend policy with minimum dividend payout of 20% of net profit. We envisage another 0.676 sen/share to be paid out in respect of FY2021.

• Future earnings underpinned by resilient outstanding orderbook. As of end Jan 22, MGB has an outstanding construction orderbook of RM1.9b. Besides, the Group has two on-going development projects for immediate launches: a) Laman Bayu Phased 3 with GDV of RM45m and b) Zenit Molek, Johor (to be launched in Sept this year) with an estimated GDV of RM367m. This is on top of its Ruman Selangorku Idaman (RSI) projects, with a combined GDV of RM1.1b, which have been soft launched since end Oct 21 and have received close to 4,000 new registrations thus far.

• Focusing on RSI whilst promoting innovative approaches in marketing and business handling. In 2022, the Group will continue its core objective in constructing and developing affordable housing under RSI scheme. Through MGB’s Value Driven Technology (VaDTech) approach, the Group will strive to develop innovative approaches for clients, focusing to be more cost-effective in doing business and reducing time to market new products. Overall, MGB intends to offer a full suite of solutions, which includes providing turnkey solutions, operating as an engineering, procurement and construction partner serving from start to end.

Earnings Outlook/Revision

• No change to our net earnings forecasts of 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 orderbook replenishment as well as chances of tapping into its parent company’s strength and resources.

Source: JF Apex Securities Research - 23 Feb 2022