A Good Quarter Overall – MGB has achieved improved results in the first quarter of 2023. The revenue increased to RM177.8m (24.0% QoQ; -0.5% YoY), driven by project completions and progress in newer projects. Net profit also grew spectacularly to RM12.0m (255.6% QoQ; 68.3% YoY) which is already 81.4% of FY22’s earnings, benefiting from enhanced profit margins, specifically an increase in the GP margin by 2.4% to 18.3%. The lower tax paid for the quarter played a significant role in the company's record earnings, primarily due to favourable tax credits and expenses.
Reduced Project Costs – Despite a decrease in revenue from the construction and trading segment, primarily because of the completion of projects scheduled for this year, the company was able to enhance its profitability by managing costs effectively for the Kita Harmoni and Kita Impian projects. The Group has a remaining orderbook of RM1.8b.
New Project Launched – The recent launch of 1,448 affordable apartments by Idaman Melur has stimulated growth in the property development segment. As a result, this segment’s profit before tax (PBT) has seen a significant increase of 40.4% compared to the previous quarter and an astonishing 360.5% YoY growth.
Dividend Paid – On March 30, 2023, a dividend of RM0.00249 per ordinary share, totalling RM1.47 million, was paid.
MOU with the Saudis – During early 2023, the Group entered an MOU with SANY Alameriah to install 10,000 precast concrete units for the Government Sakani Program in Saudi Arabia within 5 years. They will also operate a factory in Jeddah and supply products for the project, valued at approximately 2.5b SAR or about RM3b. Earnings
Outlook/Revision
Forecast upgraded-We maintain our forecasts for FY23 and we adjusted revenue recognition in FY24 higher for new projects. However, if the MOU with SANY were to bear fruit, our ballpark estimates show it could contribute an additional RM12m a year in earnings for the next 5 years based on a conservative profit margin of 2% which would translate into an EPS of 8.1 sen for our FY24 forecast and an intrinsic value of RM1.04 pegged to 11.8x (-1 Standard Deviation of its 5-year mean).
Valuation & Recommendation
Maintain BUY with a higher target price of RM0.80 (from RM0.62). Our revised target price is pegged at an 11.8x PE multiple to the Group’s 2024F diluted EPS which is the -1 Standard Deviation of its 5-year historical mean PE that is in line with Bursa Malaysia Construction Index’s 2-year forward PE and also with our overall cautious outlook of the sector.
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