This article first appeared in The Edge Malaysia Weekly on February 14, 2022 - February 20, 2022

MGB Bhd, the Main Market-listed construction arm of LBS Bina Group Bhd, aims to restore its net profit to pre-pandemic levels by as early as this year.

According to MGB executive director and CEO Datuk Richard Lim Lit Chek, the group had been aiming to attain an annual revenue of RM1 billion before the Covid-19 pandemic struck and various forms of lockdown were imposed.

Unfortunately, this target had to be pushed back following the outbreak of Covid-19, the unprecedented nature of which resulted in slow progress in construction work. All construction sites were required to shut down during the Movement Control Order (MCO) period and they were allowed to operate only at 50% capacity during the Conditional MCO period in 2020.

“The construction industry has faced tremendous challenges in the past two years. With the economic recovery gaining pace, we think it is timely for our industry to recover in the next two years. Hopefully, MGB can finally achieve our RM1 billion revenue target this year and, thereon, our profit could revisit pre-pandemic levels,” Lit Chek, 45, tells The Edge in an interview.

MGB saw its net profit decline from RM32.2 million in the financial year ended Dec 31, 2018 (FY2018) to RM13.5 million in FY2019 and RM13.9 million in FY2020 before recovering to RM16.49 million in the nine months ended Sept 30, 2021 (9MFY2021).

As the government is expected to roll out more infrastructure projects, MGB will continue to bid for these jobs in its effort to increase its revenue streams, says Lit Chek.

“We are confident of achieving and accomplishing greater milestones in the near future, within the next few years. We also plan to introduce new technologies to solve the current challenges faced by various industries,” he adds.

For instance, MGB launched the Industrialised Building System (IBS) prefab technology in 2018. Through continuous improvement and R&D, it has provided the company with stable income.

“With MGB’s precast expertise, I believe more fund managers and investors will realise the company’s future potential. We are optimistic that unlike the high-end market, the demand for mass market and affordable homes will remain sustainable and consistently strong,” says Lit Chek.

“That’s why many developers are switching their business strategies to build more affordable homes nowadays. Eventually, construction companies with IBS precast plants, like us, will benefit.”

MGB is 58.65%-owned by LBS, the Main Market-listed property firm controlled by the family of Tan Sri Lim Hock San.

Richard Lim, a cousin of Hock San, is the second-largest shareholder of MGB with a 12.37% stake. The other top 30 shareholders of the company include six Kenanga funds and two Principal DALI funds.

Hock San, 64, who is executive chairman of LBS and executive vice-chairman of MGB, says he is particularly excited about the latter’s IBS precast operation, which has been contributing to its own construction business in terms of cost savings.

“Currently, there are not many construction companies in Malaysia that own IBS precast plants. Some players are bringing in IBS technology from Western countries, but we chose the Chinese technology because it is more cost-efficient. We feel that the IBS precast operation could give us a competitive advantage and cost savings,” he says.

MGB has an 81% stake in MGB Sany (M) IBS Sdn Bhd, a joint-venture (JV) company that operates precast concrete panel manufacturing plants in Alam Perdana, Selangor, and Nilai, Negeri Sembilan. Its partner from China holds the other 19% of the JV firm.

In 2017, MGB Sany built its first plant in Alam Perdana for RM20 million. About a year later, the second plant in Nilai was built for RM40 million.

“We invested about RM60 million for the two plants, which have a total installed capacity of 6,000 units of properties (3,000 units per plant). With our projects in hand and order book, our utilisation rate should hit 50% by year-end,” says Hock San.

If MGB performs well, in terms of both its share price and financial results, its parent company LBS should benefit as well, he says.

“We hope MGB will continue to perform well. Ideally, we want the company to be more independent and standalone,” he adds.

“Although we still want to derive synergies between LBS and MGB, we also want MGB to bid for more third-party jobs, and maybe even go overseas. Of course, all this will take time.”

For perspective, 50% of MGB’s construction jobs come from LBS, while the other half comes from its own developments and external projects. Notably, the company has secured six Rumah Selangorku Idaman projects to build a total of 7,210 affordable homes priced from RM250,000.

“We have received more than 4,000 registration inquiries, with 1,312 units fully booked in our first project, Idaman BSP in Bandar Saujana Putra. We plan to complete the launch of six projects within 1½ years,” says Hock San.

He adds that the Selangor government plans to provide 30,000 units of affordable housing for the people in the state. In other words, the 7,210 units are just the beginning.

Over the past 12 months, the share price of MGB had fallen nearly 22% to close at 74 sen last Wednesday, giving the company a market capitalisation of RM434.86 million. The counter is currently trading at a historical price-earnings ratio of about 20 times.

RHB Research has maintained its “buy” call on MGB, with a new target price of 99 sen. “We still favour MGB’s outlook and growth trajectory. The group should continue to benefit from economies of scale at its IBS plant, backed by construction orders from LBS and the Rumah Selangorku Idaman projects,” it says in a Feb 8 report.

A check on AbsolutelyStocks shows that MGB had almost halved its net debt from RM214.3 million as at Dec 31, 2018, to RM108.4 million as at Sept 30 last year.

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