Results

• Results below expectation. MGB Berhad (MGB) posted 2Q22 net profit of RM0.5m, which tumbled 88.4% yoy and 93.0% qoq. Revenue wise, the Group recorded top line of RM133.8m, up 5.8% yoy but slid 25.1% qoq. 1H22 net profit of RM7.6m (-47.2% yoy) and revenue of RM312.4m (+6.2% yoy) are way below our expectation as it accounts for merely 24%/30% of our full year net earnings/revenue estimates no thanks to lower-than-expected progress billings coupled with weaker profit margin for both Construction and Property Development segments.

Comment

• Weaker quarter. The lower yoy and qoq performance was bogged down by its Construction division (segmental PBT margin: -3.6ppt yoy and -4.1ppt qoq) and Property Development division (segmental PBT margin: -4.8ppt yoy and -15.2ppt qoq). The rising cost of building materials weighed on the margin whilst shortage of foreign workers affected the construction progress of the on-going projects. Likewise, the abovementioned reasons coupled with the timing differences of profit recognition on property development projects also dragged down the overall 1H22 performance (Construction PBT margin: - 2.7ppt yoy) and Property Development PBT margin: - 2.3ppt yoy).

• Potential new job win. We envisage the Group to win some external and/or internal construction projects in coming months to meet its target orderbook for this year. Currently, MGB boasts an outstanding construction orderbook of RM2b which underpins its earnings visibility for the next 2 years. However, we expect the Group’s margin continues to be under pressure in relation to rising cost of material, hike in minimum wages earlier this year, and shortage of foreign labour.

• Property project launches still on track. Idaman BSP has received 100% booking and in the midst of converting into sales (50% signing S&P thus far). MGB plans to launch its Zenit Molek, Johor in Sept/Oct this year with an estimated GDV of RM367m. In addition, the Group also targets to launch its Rumah Selangorku Idaman (RSI) projects such as Idaman Melur (GDV of RM407m) and Idaman Cahaya (GDV of RM512m) in 4Q.

Earnings Outlook/Revision

• We slash our 2022F and 2023F net earnings forecasts by respective 27.9% and 21.4% to RM23.1m and RM34.0m after lowering our progress billings on current construction projects, slower profit recognition of RSI projects on the back of late launches in this year as well as our lower margin assumptions.

Valuation & Recommendation

• Maintain BUY with a lower target price of RM0.61 (from RM0.72) following our earnings cut. Our revised target price is now pegged at 10x PE multiple to the Group’s 2023F diluted EPS (roll over our valuation from 2022F to 2023F) which is in line with its 5-year historical mean PE.

Source: JF Apex Securities Research - 19 Aug 2022