Results

• 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.

Source: JF Apex Securities Research - 19 May 2023