• Still BUY and SOP-derived TP of MYR0.89, 23% upside and c.2% FY24F yield. We expect 1Q23 core earnings to be higher QoQ, reaching MYR6- 8m vs 4Q22’s MYR3.8m core profit amidst easing labour pressures. With MGB’s potential precast venture in Saudi Arabia and the possibility of the group scoring more affordable housing jobs in Selangor beyond the current 7.2k units, we view valuation to be undemanding as its 8.6x FY24F P/E is -2SD and -0.5SD from the KL Construction Index and its own 5-year mean.

• Project launches catching up speed. We learnt that the Rumah Selangorku Idaman (Idaman) Bandar Saujana Putra (BSP) project (launched in 4Q21) has reached a c.96% sales conversion rate, with 33% physical completion. Meanwhile, Idaman Melur in Dengkil (launched in end- Oct 2022), is 5% completed with a 12% sales conversion rate. Meanwhile, Idaman Cahaya’s first phase in Shah Alam was recently launched in February while Idaman Sari is expected to be launched between 2Q23 and 3Q23. The remaining two (Kita and Alam Perdana) are estimated to be rolled out either towards the end of FY23 or early FY24. Aside from Idaman projects – MGB has launched the Pangsapuri Saujana Indah in Molek, Johor during late March with a GDV of MYR437m.

• Outlook. MGB currently has four projects related to LBS Bina’s (LBS MK, BUY, TP: MYR0.56) KITA @ Cybersouth township under its orderbook worth c.MYR442m as at end FY22. As such, we do not discount further opportunities for MGB to replenish jobs coming from KITA @ Cybersouth. We view the prospects from the said township to be bright following >90% of the latest KITA Bestari’s (a new phase launched under the township) single-storey houses were booked within two weeks after bookings opened. With that, we believe its c.MYR500m FY23 job replenishment target (FY22 new job wins: c.MYR400m) is reasonable at this juncture.

• No changes made to our earnings estimates as any potential contract arising from the MoU with Sany Alameriah (SA) may only be known by end- 2Q23. Based on preliminary estimates, the value to supply and install the precast products is c.MYR2.9bn, which may translate to an annual PAT of c.MYR8.7m over a 5-year period – assuming a 50:50 profit sharing between SA and MGB and a conservative PAT margin of 3%.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. Further details are in our 2 May thematic research note titled Envisioning a Better Future.

• Despite the change in weightage for the E, S, and G pillars, the ESG score for MGB remains at the country median of 3.0. All in, our SOP-derived TP of MYR0.89 is unchanged after factoring in a 0% ESG premium/discount based on our latest in-house proprietary ESG methodology. Key risk includes an unexpected slowdown in the property market.

Source: RHB Research - 16 May 2023