MGB: Strong Earnings Outperformance Driven by Cost Savings, Positive Outlook Affirmed
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates a robust financial performance, with core profit for fiscal year 2025 (FY25) significantly exceeding both analyst and consensus expectations. The reported core profit of MYR48.6 million was 103% and 102% above the respective projections, primarily driven by exceptional cost efficiencies within its property development segment.
Performance Review
The stellar FY25 results were largely underpinned by the property development arm, which posted a pre-tax profit (PBT) of MYR93.8 million, marking a 22.4% year-on-year increase. This segment’s PBT margin saw a substantial improvement to 24% in FY25, up from 15.8% in FY24, attributed to prudent administrative cost management and the successful completion and vacant possession of key projects such as Idaman Melur.
Conversely, the construction arm faced headwinds, recording a pre-tax loss of MYR20.2 million in FY25, a notable decline from a PBT of MYR12.8 million in FY24. This was primarily due to several projects nearing completion, leading to softer utilization, compounded by higher expenses incurred in its precast business in Saudi Arabia.
Future Outlook and Order Book
Despite challenges in the construction division, the company maintains a positive outlook, supported by a robust outstanding order book valued at approximately MYR1.2 billion as of end-FY25, an increase from MYR1.1 billion at end-FY24. The firm anticipates securing new construction wins totaling around MYR700 million, further bolstering its earnings visibility. Additionally, the company is actively expanding its presence in Saudi Arabia, with a tender book worth approximately SAR800 million, transitioning from a precast manufacturer to a main contractor.
The report forecasts a compelling 3-year earnings Compound Annual Growth Rate (CAGR) of 10.5% from FY25-28F. This growth is further reinforced by a substantial pipeline of new property projects, including affordable housing initiatives, boasting a cumulative Gross Development Value (GDV) exceeding MYR1 billion.
Valuation and Catalysts
The current valuation is considered undemanding, with a projected FY26F Price-to-Earnings (P/E) ratio of 5x, placing it below its 5-year mean. Key potential catalysts for future growth include the faster-than-expected development of the Kertih Terengganu Industrial Park, with an estimated GDV of MYR747 million, and the successful acquisition of construction jobs in the Johor Bahru area. The report notes an ESG score of 3 out of 4, with no ESG premium currently factored into its valuation.
