MGB’s swelling order book anchors its forward earnings

Construction outfit MGB Bhd is likely to trend higher after climbing from a low 63.5 sen on 8 Feb 2024 to close at 87 sen on May 17.

On a year to date basis, the counter rose 36% to trade near its year high of 91 sen.

Resistance targets are at 91 sen and RM1.00.

MGB is involved in the construction industry, specialising in constructing design and build projects and general construction

What is attractive about this company is its earnings will be underpinned by a strong order book of RM1.27 billion.

MGB has recently secured a contract worth RM207 million to undertake a property development project in Sepang.

it had also bagged its first precast purchase order overseas from Saudi Arabia valued at RM119.5 million.

MGB is set to supply and install precast concrete products for 400 villa units for the Roshn Alarous development project in North Jeddah, following a contract signed between SANY Alameriah Industrials (SA) and SALD Industrial Company.

Last year, MGB entered a joint-venture agreement with SA through its subsidiary MGB International for Industry, wherein the company will operate SA’s precast concrete factory.

The company also performed remarkably, reported net earnings of RM12.5 million, an increase of 236% YoY in 4QFY23.

This lifted its FY Dec 2023’s bottomline to RM48.8 million ( up 223% YoY).

The group is anticipated to rake in net earnings of RM59.2 million in FY24 and RM67.6 million in FY25.

This implies a forward PERs of 8.2x this year and 7.2x next year, respectively.

Analysts are expecting MGB to reach RM1.13 within a year

given that the company is deeply undervalued, based on its growth prospects.

Additional catalysts include more affordable housing projects in Selangor and new property projects in Johor coming on stream.

For instance, RHB expects the company’s core earnings to grow year-on-year between RM10 million and RM12 million for 4QFY2023.

This translates to nearly quadrupling from the RM3.8 million reported in 4QFY2022, driven by higher progress billings from ongoing projects, coupled with favourable labour conditions and manageable raw material prices.

Notably, for the cumulative nine months ended Sept 30, 2023, MGB’s net profit surged threefold to RM36.32 million from RM11.38 million the year before.

Earnings for FY2024 are also expected to be bolstered by progress in existing projects, including the KITA@Cybersouth and Idaman projects.

Investors should be encouraged by the company’s bright prospects and undemanding valuations, making the counter a good investment opportunity.