• Still BUY, with new SOP-derived TP of MYR0.93 from MYR0.89, 28% upside and c.2% yield. 1Q23 core profit of MYR12m (+82% YoY) exceeded our and Street estimates at 40% and 38% of FY23F. The positive deviation was due to the better-than-expected cost management. We expect MGB to see a >50% growth in FY23 backed by better labour conditions with all of its c.240 approved worker quota already filled and higher progress billings of certain projects (particularly KITA@Cybersouth).

• Performance review. 1Q23 construction revenue saw a 3.1% YoY drop amid finalisation of certain projects (Residensi Bintang and Mercu Jalil). 1Q23 EBIT grew 20% YoY due to provisions written back for the Kita Harmoni and Kita Impian projects. EBIT margin also rose to 8.5% in 1Q23 (1Q22: 6.9%). The property development arm saw a >50% jump in revenue during 1Q23 backed by Laman Bayu Phases 3 and 4 (>95% sold) while Idaman Melur (launched in Oct 2022) recorded a 12% sales conversion rate. Its EBIT margin grew in tandem to reach 33% in 1Q23 (1Q22: 15%).

• Outstanding orderbook of MYR1.8bn as at end 1Q23 (earnings visibility of up to three years), includes four jobs (cumulative contract value: >MYR400m) related to LBS Bina’s (LBS MK, BUY, TP: MYR0.56) key township development – KITA@Cybersouth. As such, MGB is seen to be a frontrunner for LBS Bina’s upcoming projects under KITA@Cybersouth as recently launched projects such as the KITA Bestari single-storey houses saw a >90% booking rate.

• Earnings forecasts. As earnings exceeded expectations, we revise our FY23F-25F earnings by +14%, +4% and 2% to reflect higher margins from lower cost assumptions. 1Q23 earnings made up 35% of our latest FY23F earnings of MYR34m – this is to take into account the second and third quarters are usually weaker. Therefore, we derive a new SOP-derived TP of MYR0.93 (from MYR0.89) after factoring in a 0% ESG premium based on our in-house proprietary ESG methodology. Key risk includes an unexpected slowdown in the property market.

• Valuation undemanding – trading at 8.4x FY23F P/E, or -0.5D and -2SD from its own 5-year mean P/E and the Bursa Malaysia Construction Index. Aside from the potential pre-cast venture in Saudi Arabia (yet to be imputed in our forecast) – additional catalysts may come from LBS’ MoU with SANY Group to develop 10k units of properties across Asia (estimated value of MYR3bn). We also do not discount MGB’s possibility of scoring more affordable housing jobs as the Selangor Government targets to build 60k housing units by 2025. Under MGB’s six projects for Rumah Selangorku Idaman consisting of 7,210 housing units for which it has secured, we expect at least 30% of yearly revenue contribution from FY23F-25F.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we have 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.

Source: RHB Research - 19 May 2023