MGB: Positive Outlook Maintained on Strategic Pivot and Robust Project Pipeline

An investment firm has maintained its “BUY” recommendation for a construction and property group, citing a strategic pivot towards higher-value regional EPC contracting and a robust project pipeline, despite trimming future earnings forecasts. The target price has been adjusted downwards to RM0.82 from RM1.01.

Performance Review and Strategic Shift

The firm noted the group’s successful transition from a domestic Industrialised Building System (IBS) component specialist to a high-value Engineering, Procurement, and Construction (EPC) player, particularly in Saudi Arabia. This strategic shift is underscored by significant international projects, including a RM444 million Al Madina Al Monawara project and ongoing precast contracts. This expansion is seen as effectively de-risking its Middle Eastern footprint and demonstrating the group’s technical IBS expertise in securing main-contractor milestones, paving the way for a RM5.0 billion future revenue roadmap.

For its Malaysian operations, the construction segment remains resilient with an outstanding order book of RM1.2 billion as of January 2026, providing clear earnings visibility through 2027. Work done certified amounts to RM1.0 billion, with the group targeting contract replenishment of RM400 million for in-house and RM200 million for external projects. The property development segment also shows robust performance, with its Idaman series in Selangor achieving near-total market absorption and strong take-up rates for new projects like Pangsapuri Saujana Indah in Johor, contributing approximately RM280 million in unbilled sales.

Earnings Adjustment and Outlook

The revision in future earnings for FY26E-FY27E by 5.3% is primarily attributed to a higher effective tax rate assumption of 28%, up from 24%. This adjustment led to the revised SOP-based target price. However, the firm maintains its positive stance, emphasizing the group’s solid affordable housing franchise, healthy order book, proven IBS capabilities, and expanding footprint in Saudi Arabia. The company’s undemanding valuations and an exciting dividend yield exceeding 7% further support the “BUY” recommendation.

Key Risks

The firm identified several key risks, including the potential for escalating conflict in the Middle East, challenges in replenishing its construction order book, subdued property sales, and fluctuations in construction costs. Despite these risks, the long-term growth prospects remain compelling.

Future Growth Initiatives

The group is embarking on an aggressive growth strategy for 2026, underpinned by the RM5.0 billion future revenue roadmap. Management has set ambitious replenishment targets for its construction division, aiming for RM600 million in Malaysia and RM300 million for its overseas ventures in KSA. The property development segment targets RM1 billion across FY27-FY29. Upcoming projects include EPC works for Project Alia and luxury developments in Irqah, Riyadh, valued at approximately RM170 million, alongside new launches with an estimated Gross Development Value (GDV) of approximately RM2.0 billion.