MGB: Quarterly Earnings Outperform Modestly on Cost Controls; Robust Pipeline Bolsters Future Outlook

The company’s 12-month FY25 results largely aligned with market expectations and modestly surpassed consensus forecasts. While year-on-year (YoY) performance saw a decline, quarterly earnings demonstrated improvement, driven by consistent progress on ongoing projects and reduced tax expenses. The core net profit for the period accounted for 101% to 106% of both internal and market estimates.

Performance Review

For FY25, revenue and earnings declined by 11.2% and 10.9% respectively, compared to FY24. This downturn was primarily due to lower contributions from the Property Development segment, which saw a 19% reduction, and certain construction projects nearing their completion stages with minimal progress billings, such as Prestige and Kita Sejati.

However, on a quarter-on-quarter (QoQ) basis, revenue experienced an 8.1% increase, mainly propelled by a 13.3% rise in construction segment contributions from active projects including CI Medini, Skyria, and Centrum Iris. Despite a 7.2% decline in quarterly Profit Before Tax (PBT) due to higher administrative costs, net earnings significantly improved by 14.1% QoQ. This was largely attributed to a substantial 49.6% reduction in tax expenses, including a RM4.5m reversal of deferred tax.

Segmental Performance and Challenges

Both the construction and property development segments faced continued softening in FY25. The construction segment’s revenue declined 3.9% YoY to RM527.0m, as projects like Prestige and Kita Sejati neared completion with minimal progress billings. Consequently, this segment recorded a loss before tax (LBT) of RM20.2m, exacerbated by increased costs incurred for an overseas subsidiary.

The property development segment’s revenue also slumped 19.4% YoY, primarily due to the delivery of vacant possession for the Idaman Melur project. Despite this, the segment’s PBT grew 22.4% YoY, underpinned by increased development progress for its Saujana Indah Phase 1 and Phase 2, coupled with lower administrative costs.

Future Outlook and Valuation

The future outlook is robust, underpinned by an anticipated RM5.0 billion in potential future revenue from a diversified pipeline of projects. These include general construction, affordable housing initiatives, pocket land developments, the KTIP industrial project, and the KSA precast venture. The company also maintains a strong construction order book of RM1.15 billion.

Earnings estimates for FY26E are maintained, factoring in the company’s largest overseas contract win of up to RM444m for an engineering, procurement, and construction (EPC) project in Saudi Arabia. Furthermore, FY27E earnings have been introduced. The investment bank reiterates a BUY recommendation for the stock, with a target price of RM1.01. This target price is derived from a sum-of-parts (SOP) valuation, maintaining an 11x target P/E multiple for the construction segment. Key risks identified include the potential failure to replenish the construction order book, subdued property sales, and fluctuations in construction costs.