• Keep BUY and SOP-derived TP of MYR0.64, 22% upside with c.2% FY23F yield. We expect MGB’s 4Q22 core profit to be flattish QoQ, reaching MYR3-5m amidst residual pressures from the labour front – translating into a FY22 core earnings decline of >40% YoY. Nevertheless, MGB should see solid earnings growth of >20% YoY this year, backed by better labour conditions. 70% of its approved worker quota (250 heads) have already entered Malaysia, and there are improved progress billings on certain projects (particularly KITA @ Cybersouth).

• FY22 job trend recap and outlook. In FY22, MGB secured internal jobs from LBS Bina (LBS MK, BUY, TP: MYR0.56) worth MYR397m – a tad lower than our earlier MYR450m job replenishment assumption for the year. We estimate its latest outstanding construction orderbook to be c.MYR1.9bn as at end-FY22 – translating into an orderbook-to-revenue cover ratio of 3.3x. Specifically for KITA @ Cybersouth, LBS' key township development, the group plans to launch, among others, single-storey link, double-storey link and town houses within KITA Bestari, comprising 817 units with a total GDV of MYR418m. We believe MGB is poised to benefit from the launch, premised on its involvement in building KITA Mekar, KITA Ria, KITA Mesra and KITA Sejati (cumulative contract value: MYR601m).

• Update on Idaman projects. We gather that the Idaman Bandar Saujana Putra project (launched in 4Q21) has reached a 90-95% sales conversion rate, with 15-20% physical completion. Meanwhile, Idaman Melur in Cybersouth, Dengkil – launched in end-Oct 2022 – is 10% completed with almost all units booked. We gathered that the other two remaining Idaman projects (Cahaya and Sari) are expected to be launched between 2Q23 and 3Q23, while two more (Kita and Alam Perdana) are expected to be rolled out either towards the end of FY23 or early FY24.

• No changes made to our earnings estimates at this juncture. Despite FY22 actual job wins being slightly lower than our earlier job target assumptions, we think that 4Q22 earnings will be supported by higher progress billings from Residensi Bintang and Mercu (to be completed within 1H23). Therefore, our SOP-derived TP remains at MYR0.64, after factoring in a 0% ESG premium, based on our in-house proprietary methodology.

• Valuation. MGB is trading -1.5SD below the KLCON index’s 5-year mean P/E. This is unjustified, given the strong catalysts – the c.MYR2.9bn value to supply and install precast products for up to 10k of property units under Saudi Arabia’s Sakani housing programme should the MOU between MGB and Sany Alameriah materialise into a formal contract (expected outcome by end 1H23). We also do not discount the possibility of MGB scoring more affordable housing jobs, as the Selangor Government targets to build 60k housing units by 2025 under the Rumah Selangorku 3.0 incentive.

• Key downside risks include a prolonged period of escalated building material costs, and slower-than-expected property launches.

Source: RHB Research - 10 Feb 2023