Results

• An adequate quarterly performance – MGB has shown improved results in 2Q23 where quarterly revenue increased to RM232.6m (30.8% QoQ; 73.9% YoY), driven by project completions namely Idaman BSP, Kita Mekar, and Kita Mesra. Net profit, however remains flat at RM12.0m (-0.1% QoQ; 2416.4% YoY) but has hit 72.7% of our FY23’s forecasted earnings.

• Margins normalise – Despite an increase in revenue from the Group’s businesses, due to the completion of projects as mentioned above, margins have fallen due to a higher cost savings achieved in the previous quarter. The current GP margin is at 14.9% (18.3% 1Q23; 13.7% 2Q22) while the PAT margin stood at 5.3% (6.9% 1Q23; 0.1%% 2Q22).

• Orderbook remains healthy - The Group has a remaining orderbook of RM1.9b, a slight increase from our previous record of RM1.8b mainly restored by Idaman’s construction contracts while most of the remaining projects awarded from by parent company LBS are nearing completion.

• Overall Business Segment Improvement – MGB’s construction and property development business segments displayed significant growth compared to the previous year. In 1H23, the construction segment’s revenue grew to RM387.9m (19.1% YoY) while its PBT increased to RM29.8m (116.1% YoY); as for the property development segment, revenue rose to RM22.5m (166.1% YoY) while its PBT expands to RM4.0m (491.3% YoY).

Earnings Outlook/Revision

• Forecast maintained – We maintain our forecasts for FY23 and FY24 in line with our previous update for the potential of the new Saudi project.

Valuation & Recommendation

• Maintain BUY with a higher target price of RM0.87 (from RM0.80). Our revised target price is pegged at changed PER assumption from 11.8x to the current 12.2x 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 as we are more optimistic on the sector while remain overall conservative due to the more stability of the government after the election and presume interest rates to come to a head.

Source: JF Apex Securities Research - 21 Aug 2023