• Still BUY and SOP-derived TP of MYR1.16, 37% upside and c.2% FY24F yield. MGB’s 1H24 core profit of MYR28.2m (+20% YoY) met our estimates at 50% of full year projections but broadly met Street’s at 48%. We expect the company to continue charting a solid earnings growth of 16% in FY24F backed by higher progress billings of its property sales projects, especially the Rumah Selangorku Idaman (Idaman) projects spread over a total GDV of c.MYR1.1bn and c.3.2k units.

• MGB’s 1H24 core profit was underpinned by the property development arm which recorded a >100% YoY PBT growth due to higher unit sales progress and progress development for the Idaman Melur (92.8% sold), Idaman Cahaya Phase 1 and 2 (92.3% sold), Idaman Sari (97.3% sold) and Saujana Indah Phase 1 and 2 (c.45% sold). As such, PBT margin for the segment remained strong at 17% for 1H24 (1H23: 18%). Meanwhile, the construction arm saw an 87% YoY drop in PBT during 1H24 amidst projects nearing the tail end such as Idaman BSP and Kita Mekar and Alam Perdana Phase 4 and 5. Additionally, the group continued to incur some start-up costs in its precast operations in Saudi Arabia (KSA).

• MGB’s outstanding orderbook of MYR1.3bn as of end 2Q24 (vs MYR1.2bn as of end 1Q24) includes three jobs (cumulative contract value: c.MYR442m) related to LBS Bina’s (LBS MK, NEUTRAL, TP: MYR0.93) key township development – KITA@Cybersouth. As such, MGB continues to be seen as a frontrunner for LBS Bina’s upcoming projects under KITA@Cybersouth. MGB’s ongoing four projects under KITA@Cybersouth township makes up MYR194m or 23% of MGB’s internal outstanding construction orderbook. LBS Bina’s plan to launch 10 projects with a total GDV of MYR2.3bn in CY24 across the Klang Valley, Pahang and Johor should also benefit MGB’s job replenishment prospects.

• Earnings forecast and valuation. No changes to our earnings estimates as earnings were within expectations. All in, our SOP-derived TP remains unchanged at MYR1.16 with the construction arm pegged to an unchanged target P/E of 12x (which we deem is justified amidst upcoming launches by LBS and growth in KSA’s housing sector). Our TP also bakes in a 0% ESG premium/discount based on MGB’s ESG score of 3.0.

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

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

Source: RHB Research - 20 Aug 2024