RHB upgrades MGB to 'buy' on improved project pipeline forecasts

  • Analyst Reports
  • Monday, 14 Sep 2020

KUALA LUMPUR: RHB Investment Bank Research has upgraded MGB Bhd to a "buy" call on renewed optimism over robust construction contract flows and a strong Rumah Idaman project launch pipeline.

The research house said it raised FY20 to FY22 forecast earnings by 4%, 26% and 48% respectively, after factoring in a larger contract replenishment assumption and more Rumah Idaman projects.

"We raise our target P/E assumption for the construction segment to 16.5x (from 12x previously), at +2SD of KLCON’s blended forward P/E, on robust construction contract replenishment from internal and government projects given expectations of an improving macro environment for the sector.

"We also ascribe a narrower 30% discount (from 40%) to RNAV for its property segment, which we think is fair given the strong pipeline of Rumah Idaman projects," it said.

RHB's raised its target price to 82 sen from 58 sen previously, which represents 11% upside from the stock's Friday close.

According to the research house, MGB's latest guidance includes a higher contract replenishment target of about RM1bil for FY20, up from RM300mil to RM500mil previously.

So far in 2020, MGB has secured three projects from LBS Bina with a total value of about RM545mil, which beat RHB's earlier estimate of RM500mil for the year.

The group's tender book stands at RM1bil with an even split between government and internal projects, the latter of which could come by this year.

"Consequently, we raised our FY20F construction replenishment assumption by an additional MYR500m to MYR1.05bn and our FY21F-22F to MYR600m pa (from MYR400m pa)," said RHB.

Meanwhile, MGB's discussions with the Selangor government over the Rumah Idaman project are ain their final stages.

RHB Is optimistic that MGB will secure the remaining units of the Rumah Idaman project from its target of 10,000 units.

"We understand that the company is looking to launch all of the 10,000 Rumah Idaman units in FY21F through staggered launching.

"With that, we now take into account the remaining 6,185 units of its Phase 1 Rumah Idaman project (3,815 units were announced previously)," it said.

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