Results

• Results within expectation. MGB Berhad (MGB) posted a 3Q22 net profit of RM3.7m, which rose 86.9% YoY and 689.3% QoQ. For revenue, the Group displayed an improved top line of RM154.9 (from RM111.1m), up 39.4% YoY and 15.8% QoQ. 9M22 net profit of RM11.4m (-31% YoY) and revenue of RM467.2m (+15.3% YoY) has only achieved part of our expectations as it currently still accounts for 46%/73% of our fullyear net earnings/revenue estimates thanks to improvements in both Construction and Property Development segments.

Comment

• Mixed quarter. Despite the increase in revenue uplifted by projects such as Residensi Bintang and Mercu Jalil coupled with the newly launched Phase 3 and Phase 4 projects of Laman Bayu during September, the mixed YoY and QoQ performance was brought by both of its divisions, Construction (segmental PBT margin: -0.1ppt YoY and 1.3ppt QoQ) and Property Development (segmental PBT margin: -55.9ppt YoY and 3.8ppt QoQ). As the rising cost of building materials and the shortage of labour continue to weigh on the margins, affecting the progress of MGB’s ongoing projects. On top of that, it has also continued to affect the overall 9M22 performance (Construction PBT margin: -1.8ppt YoY) and Property Development PBT margin: -7.6ppt YoY).

• Putting the target to focus. We envisage the Group to win some external projects from the government and/or internal construction projects from LBS Bina as MGB remains a valuable cost and time-saving collaborator till the year-end to meet its target orderbook for 2022. Currently, MGB still stands with an outstanding construction orderbook of RM2.12b which provides a base for its earnings visibility for the upcoming years.

• Success for Idaman Melur and more Idaman projects to be launched in 2023. Idaman BSP has received a 100% takeup rate and has currently converted 80% of it into sales. Similarly, Idaman Melur has just recently launched in November 2022 with another 100% take-up rate but has yet converted into sales. MGB plans to fully launch its remaining four Idaman projects in the following year. We expect similar demand to take place for the other MGB’s Idaman projects.

Earnings Outlook/Revision

• We adjust our 2022F and 2023F net earnings forecasts by respective 8% and -1.5% to RM25m and RM33.5m after lowering our progress billings on current construction projects while maintaining historical margins.

Valuation & Recommendation

• Maintain BUY with a lower target price of RM0.57 (from RM0.62) following our adjustments. Our revised target price is 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 and overall lower growth.

Source: JF Apex Securities Research - 21 Nov 2022