MGB: Key Contract Win Bolsters Future Prospects Despite Recent Earnings Miss
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates a mixed financial performance, with 9MFY25 core net profit falling below expectations, yet a significant new contract win in Saudi Arabia is poised to drive future growth. While the near-term saw challenges, the long-term outlook remains positive with an upgraded earnings forecast.
Performance Review
The company’s core net profit for the first nine months of FY25 accounted for only 62% of the full-year forecast, missing internal projections. This variance was primarily attributed to several construction projects nearing completion and a higher-than-expected effective tax rate of 31%, compared to a forecasted 24%. On a year-over-year basis, revenue and earnings declined by 21.4% and 25.7%, respectively, due to minimal progress on key construction projects like Prestige, Kita Sejati, and Kita Mesra.
However, there was a sequential improvement quarter-on-quarter. Topline elevated by 5.0%, largely driven by stronger construction contributions from the ongoing Alam Perdana Phase 8 development. Earnings for the quarter improved by 8.7% to RM12.3 million. The effective tax rate for the quarter was notably higher at 33.7% due to losses in certain subsidiaries that could not be offset against taxable profits from other subsidiaries and non-tax-deductible expenses.
Segmental Challenges
Both the construction and property development segments experienced softness. The construction division posted a softer 9MFY25 revenue, weighed down by the nearing completion of three projects and increased costs incurred in an overseas subsidiary, resulting in a loss before tax of RM10.5 million. The property development segment also recorded a steeper decline in 9MFY25 revenue, mainly due to the delivery of vacant possession for the Idaman Melur project. Nonetheless, property profit before tax rose by 12.7% year-on-year thanks to increased progress development in ongoing projects such as Idaman Cahaya Phase 2, Idaman Sari, Saujana Indah Phase 1 and Phase 2.
Future Outlook and Growth Drivers
Despite the weaker-than-expected progress in both construction and property development in FY25, the future outlook is significantly brighter. The investment bank has upgraded its FY26E earnings by 7% to RM70 million, primarily to account for new wins from its largest overseas contract. This includes a substantial RM444 million EPC contract in Saudi Arabia for the engineering, procurement, and construction of 440 apartment units in Al Madina Al Manowara.
This Saudi contract is expected to contribute approximately RM134 million in revenue for FY26 alone, with construction projected to commence by March 1, 2026, and reach completion by the end of 3QFY28. The company’s outlook is further supported by an estimated RM4.53 billion in potential future revenue across various segments, including construction, affordable housing, pocket land developments, the KTIP industrial project, and the KSA precast venture. The construction orderbook remains healthy at RM1.13 billion.
Investment Bank’s View
TA SECURITIES maintains a BUY recommendation. The target price (TP) has been set at RM0.25, representing a potential upside of 25.0% from the last traded price of RM0.20. This positive outlook reflects the strategic importance of the new Saudi contract in driving future earnings and offsetting recent operational challenges.
