MGB eyes IBS plants expansion underpin by Idaman projects

by HARIZAH KAMEL / graphic by TMR

MGB Bhd is looking to expand both of its industrialised building system (IBS) precast plants in anticipation of demand from its Rumah Selangorku Idaman (Idaman) projects.

RHB Investment Bank Bhd (RHB Research) analyst Eddy Do Wey Qing noted that both factories will have capacities increased to 3,000 units per annum (pa) with total capacities of 6,000 units per annum.

“We understand capital expenditure allocated for the expansion is about RM3.2 million and upgrade works are targeted for completion by the third quarter of 2021 (3Q21).

“Plant utilisation is expected to peak, as ongoing and future Idaman affordable housing projects are progressing concurrently,” he stated in a research note on the company yesterday.

RHB Research kept its ‘Buy’ call on the developer and raised its target price for MGB to RM1.07 from RM1.02, a 10% upside with a 3% yield.

Do added that a total of 10,000 units of affordable houses under the Idaman projects are still expected, of which around 7,210 are already in motion.

MGB’s outstanding construction orderbook of RM2.07 billion and the launch of Laman Bayu Phase 3 project should continue to provide earnings visibility for the next three years.

The group’s 1Q21 core earnings were in line with expectations, increasing by threefold year-on-year (YoY) or 315% to RM10 million, which is at 26.7% of RHB Research’s FY21 forecast figure.

MGB’s construction Ebit margin widened to a high 9% supported by improved operations efficiency and finalisation of accounts for projects that were completed previously.

Internal revenues recorded by MGB’s manufacturing segment, the IBS plants, were up 259% YoY to RM9.2 million, post the ramping up of construction progress.

The research house believes margins will normalise following the absence of a boost from final accounts.

RHB made no changes to its earnings estimates for MGB and recognised the two turnkey projects, namely Idaman Warisan Alam Perdana and Idaman BSP, in the construction segment instead of property development, as they are included as part of the outstanding construction orderbook.

“Our target price earnings for the construction segment are lowered to 16.4 times from 17.4 times previously. We think a premium to the Bursa Malaysia Construction Index is still justifiable, given the multiple short-term catalysts that could bring upside to earnings.

“These are more Idaman projects that may lead to further benefits from the economies of scale for MGB’s IBS facilities and external construction contract wins, which usually fetch better margins,” said Do.

Risks to the RHB forecast include a sharp increase in input costs of cement and steel, delayed launches, a resurgence in Covid-19 cases and management execution of — and non-fulfilment of — conditions precedent in MGB’s proposed joint-venture agreement for the Idaman projects.