• Still BUY, with new SOP-derived TP of MYR0.89 from MYR0.64, 31% upside and c.2% yield. We believe MGB’s recent MoU with SANY Alameriah For Construction Co Ltd (SA) will land a possible precast venture. If it materialises, MGB may widen its revenue base from precast products, currently recognised internally. Together with the possibility of scoring more affordable housing jobs in Selangor – valuation is undemanding as its 8.1x FY24F P/E is -2SD and -0.5SD from the KL Construction Index and its own 5-year mean.

• The aforementioned MoU inked in January, with SA highlighting its interest to: i) Appoint MGB for installing precast concrete products for up to 10k units of properties in Saudi Arabia’s (KSA) Sakani housing programme (expected completion within five years), and ii) collaborate with MGB to operate a precast concrete factory in Jeddah. The value to supply and install the precast products is around SAR2.5bn (c.MYR2.9bn), which could translate to an annual PAT of c.MYR8.7m to MGB over a 5-year period based on our preliminary estimates assuming a 50:50 profit sharing between SA and MGB and a conservative PAT margin of 3%.

• KSA’s national housing plans under the Sakani programme in Jeddah include the Al-Jawhara Al-Mayar and Al-Khayala suburbs covering >25,000 units with a total value of USD21bn (Figure 3). In the long run, Jeddah together with Riyadh are expected to see real estate and infrastructure development projects worth over USD200bn by end-2030. Therefore, MGB may be in a sweet spot to leverage on more opportunities in KSA should it be involved in the abovementioned precast venture with SA.

• Supply of precast products internally contributed MYR29.9m or 4.7% of MGB’s total construction and trading revenue (prior to elimination) in FY22 with GPMs of c.30% in FY20-21. Its precast arm in Malaysia is operated via an 81%-owned subsidiary – MGB SANY (M) IBS – indicating that MGB is no stranger to SA. Capacity wise, MGB’s two precast plants located in Nilai and Alam impian have a total annual capacity of installing 6k units of properties per year. With its experience in handling precast plants of such capacity in addition to supplying to a fair mix of landed and high rise projects (landed-to-high rise ratio of 52:48) in Malaysia, we foresee manageable execution risks assuming that MGB supplies precast products for an average of 2k housing units pa over five years across various types of houses in KSA (townhouse villas and apartments).

• No changes made to our earnings estimates as any potential contract arising from the MoU may only be known later in 2Q23. Nevertheless, we are taking the opportunity to roll forward our valuation base to FY24F. As a result, we arrive at a new SOP-derived MYR0.89 TP after factoring in a 0% premium/discount based on our in-house ESG proprietary methodology.

• Key risks include unexpected delays in affordable home project launches and labour shortage.

Source: RHB Research - 31 Mar 2023