MGB: Property Segment Drives Earnings Beat, New Contract Boosts Outlook
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading construction and property development company has reported a core profit that broadly met analyst expectations for the first nine months of its fiscal year 2025, primarily propelled by its strong property development segment. Despite a year-on-year decline in core profit and a weaker construction division, the company’s future outlook is strengthened by a robust order book and significant new contract wins. RHB Investment Bank has maintained a ‘Buy’ rating on the stock, revising its target price to MYR0.83, offering a substantial potential upside from the last traded price of MYR0.44.
Performance Review
For the first nine months of FY25, the company achieved a core profit of MYR34.6 million, marking a 17% year-on-year decrease but aligning closely with both RHB’s (71%) and Street’s (74%) estimates. This performance saw a negative deviation largely attributed to a weaker-than-expected construction segment.
The third quarter of FY25 saw its pre-tax profit predominantly driven by the property development segment, which recorded a pre-tax profit of MYR25.6 million, a substantial 41% year-on-year increase. This surge was due to accelerated progress in ongoing development projects such as Idaman Cahaya Phase 2, Idaman Sari, and Saujana Indah Phase 1 and 2.
Conversely, the construction segment registered a loss before tax of MYR6.5 million in 3Q25, a stark contrast to a pre-tax profit of MYR4.7 million in 3Q24. This downturn was primarily due to several projects, including Prestige, Kita Sejati, and Kita Mesra, nearing completion, alongside higher expenses incurred for its precast business in Saudi Arabia.
Order Book and Future Growth
The company’s outstanding order book currently stands at approximately MYR1.4 billion, reflecting the effective share of its latest international contract. Year-to-date FY25 job wins have exceeded its initial replenishment target of MYR500 million, now reaching at least MYR700 million.
A significant new construction contract was secured in Saudi Arabia through a 50%-owned joint venture, MGB Alameriah Contracting Company. The contract, valued between MYR388.5 million and MYR444 million (subject to final drawings), involves the construction of 440 apartment units in the Al Madina Al Monawara project. While this project is slated to commence in March 2026 for a 30-month period, contributing a net margin of 5%, it is not expected to materially impact FY25F earnings.
Outlook and Valuation
Despite the current challenges in the local construction segment, the company’s prospects remain strong. A robust pipeline of new property projects, including affordable housing initiatives with a cumulative Gross Development Value (GDV) exceeding MYR1 billion, provides commendable earnings visibility.
The stock’s valuation is considered undemanding, trading at 5x FY26F P/E, which is one standard deviation below its five-year mean. A potential catalyst for future growth includes the faster-than-expected development of the Kertih Terengganu Industrial Park, with an estimated GDV of MYR747 million. However, a key risk factor remains an unexpected slowdown in the broader property market.
Recommendation and Target Price
Based on these factors, RHB Investment Bank has maintained its ‘Buy’ recommendation. Following adjustments for slower progress in local construction jobs, the bank has refined its FY25F earnings by -3% and FY26F/FY27F earnings by -2% each. The new Sum-of-Parts (SOP)-derived target price is MYR0.83, adjusted from MYR0.87, representing an 89% potential upside and incorporating a 0% ESG premium/discount based on an ESG score of 3.0.
