• Stay BUY and MYR1.13 TP (SOP), 30% upside and c.2.5% FY24F yield. FY23 core earnings of MYR47.9m (>100% YoY) met our and Street’s estimates at 99% and 100% of full-year projections. We expect MGB to continue charting a solid growth of >20% in FY24, backed by higher progress billings of certain projects (particularly KITA @ Cybersouth) as the projects move higher along the S-curve. This is in addition to its expected maiden contribution from the precast business in Saudi Arabia (KSA).

• MGB’s FY23 core earnings were partly backed by robust construction revenue growth of 45% YoY from projects such as Idaman Bandar Saujana Putra, KITA Mekar, Prestige, and KITA Sejati. In the same vein, the property development arm saw a >100% jump in revenue during 4Q23, backed by sales of Idaman Melur (61% sold), Idaman Cahaya (76% sold), and Idaman Sari (90% sold). As such, PBT margins of the property arm grew in tandem to reach 16.1% in FY23 (FY22: 13.5%).

• MGB’s outstanding orderbook of MYR1.1bn as of end 4Q23 (end-3Q23: MYR1.3bn) includes four jobs (cumulative contract value: c.MYR635m) related to LBS Bina’s (LBS MK, BUY, TP: MYR0.82) key township development, KITA@Cybersouth. As such, MGB continues to be seen as a frontrunner for LBS Bina’s upcoming projects under the KITA@Cybersouth development. Its ongoing four projects under this township makes up MYR295m or 26% of the group’s outstanding construction orderbook. We also believe LBS Bina’s plan to launch 10 projects with a total GDV of MYR2.3bn in 2024 across the Klang Valley, Pahang, and Johor should also benefit MGB’s job replenishment prospects.

• Earnings forecast and valuation. We make no changes to our earnings estimates as they were within expectations. We also introduce our FY26F earnings with an annual job replenishment target of MYR500m – backed mainly by LBS Bina-related contracts. All in, our SOP-derived TP remains unchanged at MYR1.13, with the construction arm pegged to an unchanged target P/E of 12x. We deem this justified amidst upcoming launches by LBS Bina and the growth in KSA’s housing sector. Our TP also bakes in in a 0% ESG premium/discount based on MGB’s ESG score of 3.0.

• Catalysts. With MGB’s precast venture in KSA to take off, in addition to the possibility of the group scoring more affordable housing jobs in Selangor beyond the current 7.2k units, we view the valuations to be undemanding, as its 8x FY25F P/E is -1SD below its 5-year mean. Catalysts include developing new property projects in Johor, as MGB already has two projects in the state – Laman Bayu (Batu Pahat) and Pangsapuri Saujana Indah (15km from Johor Bahru’s customs and immigration checkpoint).

• Key risks include an unexpected slowdown in the property market and slower-than-expected precast orders in KSA.

Source: RHB Research - 20 Feb 2024