• BUY, SOP-derived TP rises to MYR1.20 from MYR1.16, 41% upside and c.2% yield. Post-results briefing, we continue to favour MGB – premised on its various growth drivers which include construction, property, a pre-cast business, and also industrial park development. With many catalysts in store, we view MGB’s valuation as undemanding – it is trading at just 8x FY25F P/E, ie -1SD from the 5-year historical mean.

• Robust pipeline of affordable housing projects. MGB inked a conditional share purchase agreement for a company that owns 32 acres of land (Figures 1 and 2) in Taman Putra Prima, Puchong. Part of the land is to be developed into an affordable housing project under the Rumah Selangorku 3.0 (RS3) initiative, with an estimated GDV of MYR399m. It will comprise 1,980 units that are targeted to be launched in 3Q25, As such, MGB’s portfolio of affordable homes may rise to 9,190 units from 7,210 units.

• Another part of the land in Puchong may be developed as a normal high-rise project with an estimated GDV of MYR271m, which is also targeted to be launched in 3Q25. We do not discount the possibility of further announcements regarding upcoming affordable housing projects in Selangor as the state government aims to build over 200k units of affordable homes by 2028 with 45k units being built since 2018.

• MGB entered into a JV with a subsidiary of Terengganu Incorporated in Sep 2021 to develop Kertih Terengganu Industrial Park (KTIP) over 10 years. This will comprise 780 acres of saleable lots (estimated GDV of MYR747m). As of end-June, two of seven development orders have been approved. MGB may benefit from land sales (enquiries from China companies have been strong), as well as from being a consultant to obtain approval from the authorities. A bonus would be if the land buyers appoint MGB as their design- and-build contractor for their manufacturing facilities.

• The Saudi Arabia (KSA) pre-cast business has secured c.64k cu m of precast concrete orders so far vs the obligation of least 90k cu m of orders in the first year of the agreement with SANY Alameriah (SA). We think that more orders should come in by end-FY24, as there are only three precast factories serving the areas of Jeddah and Makkah (with MGB’s facility being the largest). In the long run, MGB aspires to be involved in design-and-build works for apartments on top of supplying and installing precast components.

• Earnings forecast and valuation. We increase FY25-26F earnings by 3% and 10%, after: i) imputing the property projects that are planned to be developed in Puchong, and ii) revising our FY25F assumption for the precast volume to 110k cu m (from 90k cu m), to be in line with management’s precast sales target of 100k-200k cu m. As such, we arrive at a new SOP-derived TP of MYR1.20 (from MYR1.16) which bakes in a 0% ESG premium.

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

Source: RHB Research - 21 Aug 2024