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BUY,new SOP-derived TP of MYR0.62 from MYR0.67, 19% upside with c.2% FY23F yield. We expect MGB’s 3Q22 core profit to grow QoQ to MYR1-3m (2Q22 core profit: MYR0.5m), underpinned by easing input cost pressures. That said, 3Q22 core earnings could be lower or flattish YoY due to the current labour shortage and delay in launches for the Rumah Selangorku Idaman (Idaman) project. For example, the Idaman Melur project was launched in end-October (vs the earlier target of August) – leading to a spillover effect on the timeline of other launches.
Internal job trends. So far, MGB has secured two jobs worth MYR397m from LBS Bina (LBS MK, BUY, TP: MYR0.64) subsidiaries YTD, in July and August – bringing its total orderbook to c.MYR2.1bn as at end-August, providing earnings visibility for the next three years. MGB may just hit our FY22 internal job replenishment target of MYR450m by year-end. LBS Bina has launched new projects valued at slightly over MYR1bn (as at end- October) vs its FY22 target of MYR1.8bn. Aside from that, strong take-up rates in 2Q22 – for LBS Alam Perdana and KITA@Cybersouth, in which MGB is involved – could pave the way for more job awards to MGB, in view of the property developer’s upcoming launches.
Update on Idaman projects. We gather that the Idaman Bandar Saujana Putra (BSP) project (launched in 4Q21) has reached a 70-80% sales conversion rate, with 15-20% physical completion. Meanwhile, the second of the six Idaman Projects under MGB – Idaman Melur in Cybersouth, Dengkil – was launched in end-October (vs the original target of August) with an estimated GDV worth MYR414m. The other four remaining Idaman projects (Cahaya, Sari, Kita and Alam Perdana) are now expected to be launched throughout FY23 and early FY24. On further scrutiny, Idaman Cahaya was supposed to be launched in September/October, but is now likely to be pushed to early FY23.
We slash earnings for FY22-24F by 29%, 25% and 15% after: i) Imputing slower profit recognition on Idaman project launches amid the delay in launches, and ii) reducing progress billings on ongoing construction projects. Our SOP-derived TP drops to MYR0.62, after factoring in a 0% ESG premium, based on our in-house proprietary methodology. MGB is trading at 9x FY23F P/E, or -2SD from the KLCON index’s 5-year mean. This is unjustified, given the strong catalysts in the form of project pipelines – MGB may score more contracts related to the Idaman project or affordable housing projects under the First Selangor Plan. As such, the current 7,210 affordable homes under the Idaman project could expand beyond this, and improve its earnings visibility. Further earnings upside may come from the Kerteh Biopolymer Park (MGB is the turnkey contractor) if the land purchasers appoint it to build facilities at the park.
Key downside risks include a prolonged period of escalated building material costs, and slower-than-expected property launches.
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