• Maintain BUY and SOP-derived TP of MYR0.93, 33% upside with c.2% FY23F yield. MGB has secured a MYR156.8m contract from LBS Bina’s (LBS MK, BUY, TP: MYR0.56) subsidiary for the KITA Bestari project (part of the KITA@Cybersouth township) in Dengkil, Selangor. This is the second job clinched by the company in FY23, and brings its YTD FY23 new contract wins to MYR204m (our FY23 job replenishment target: MYR450m).

• Further details. The KITA Bestari job encompasses three parcels of development with a cumulative GDV of MYR418m. The said development comprises 413 units of single-storey terrace houses, 76 units of doublestorey houses and 328 units of double-storey townhouses. The first parcel, which consists of 317 out of the 413 single-storey terrace houses, is slated to commence works on 1 Sep for 15 months. Meanwhile, works on the other two parcels will only kick off once notification is received (pending). We assume a PBT margin of 5-6% for this KITA Bestari job.

• MGB’s outstanding orderbook now stands at c. MYR1.9bn following this latest contract win, which provides earnings visibility of up to three years. Prior to this job, it orderbook already contained four projects under the KITA@Cybersouth township development with a cumulative value of MYR600m – KITA Ria, KITA Mekar, KITA Mesra and KITA Sejati. Hence, it was no surprise that MGB would secure the job for KITA Bestari. Taking into account KITA Bestari, the five projects under the township makes up MYR549m or 30% of MGB’s outstanding construction orderbook.

• Prospects. On further scrutiny, the KITA Bestari single-storey houses had a >90% booking rate when it was launched in March – indicating strong demand and confidence in such housing projects. We expect MGB’s job replenishment to be supported by LBS Bina’s aim to launch MYR1.1bn worth of projects in Klang Valley in 2023. Jobs from LBS Bina currently account for around 55-60% of its outstanding orderbook.

• Earnings forecast. As the latest job win is within our FY23 job replenishment assumption, we make no changes to our earnings estimates. Therefore, our TP of MYR0.93 is unchanged, after factoring in a 0% ESG premium based on our in-house proprietary ESG methodology.

• Valuations are undemanding as MGB is trading at 8.1x FY24F P/E, or -0.5D and -2SD from its 5-year and the Bursa Malaysia Construction Index’s mean P/Es. Aside from the potential pre-cast venture in Saudi Arabia (which has yet to be imputed into our forecasts) – additional catalysts may come from LBS Bina’s MoU with SANY Group to develop 10k units of properties across Asia (estimated value: MYR3bn). We also do not discount the possibility of MGB scoring more affordable housing jobs (exceeding the current 7,210 units under the Rumah Selangorku Idaman project) as the Selangor Government aims to build 60k housing units by 2025. These aforementioned points justifies our BUY call on the stock.

• Key downside risks include an unexpected slowdown in the property market.

Source: RHB Securities Research - 20 Jun 2023