This article first appeared in The Edge Malaysia Weekly on August 5, 2024 - August 11, 2024

Construction outfit MGB Bhd (KL:MGB), a subsidiary of LBS Bina Group Bhd (KL:LBS), is among the few companies that can boast that its profit after tax (PAT) more than tripled in a year.

In its financial year ended Dec 31, 2023 (FY2023), MGB made a record-high net profit of RM48.2 million, from RM15.1 million in FY2022, as revenue jumped to RM971.8 million — its highest ever. It made a net profit of RM14.4 million in FY2020, which rose to RM27.1 million in FY2021.

The huge spike in its FY2023 bottom line boosted the compound annual growth rate of the group’s PAT over the last three years to 39.7% — adjusted based on the methodology of The Edge Malaysia Centurion Club Corporate Awards 2024 — topping its peers in the same sector. For this, the group bagged its maiden award of Highest Growth in Profit After Tax Over Three Years.

“We are honoured to receive our first award at The Edge Malaysia Centurion Club Awards. This recognition fuels our continued pursuit of excellence and delivering commendable results. Our journey has been marked by challenges and triumphs, and this award serves as a validation of our strategic decision-making and relentless focus on operational efficiency,” says MGB group executive chairman Tan Sri Dr Lim Hock San in a statement.

Lim is group executive chairman of LBS Bina, which owns 58.65% of MGB.

MGB’s construction division saw revenue rise 46% in FY2023 on recognition of income from its Rumah Idaman project in Bandar Saujana Putra (Idaman BSP), as well as its Kita Mekar, Kita Sejati and Prestige Residence projects. All of these projects are developed by LBS Bina.

Rumah Idaman is an initiative by the Selangor government to offer affordable housing to eligible Malaysian citizens residing in the state at selected locations that have easy access to amenities. Idaman BSP, which comprises 1,312 affordable housing units in two blocks and has a collective gross development value (GDV) of RM375.41 million, was completed ahead of schedule using the Industrialised Building System (IBS).

According to MGB, by using precast concrete panels manufactured at its IBS factory in Nilai, Negeri Sembilan, construction time was shortened by up to 33%. These also significantly reduced the need for on-site labour by up to 49%, says the group.

This move increased MGB’s pre-tax margin for its construction segment to around 6% in FY2023, compared with 4% in FY2022. The segment made a pre-tax profit of RM52.49 million in FY2023, more than double the RM23.82 million it made in FY2022.

Meanwhile, the company’s property development segment saw revenue more than double year on year, thanks to higher sales at Residensi Idaman Melur at Cybersouth in Dengkil and Idaman Cahaya Phase 1 in Shah Alam, both in Selangor, as well as the delivery of vacant possession of Laman Bayu Phases 3 and 4 in Batu Pahat, Johor.

So far this year, MGB appears to be continuing its strong growth momentum. In its first quarter ended March 31, 2024 (1QFY2024), its net profit grew 16% y-o-y to RM14.2 million, as revenue rose 22.57% to RM217.88 million.

In a May 28 note, Public Invest Research said the outlook for MGB remained resilient, underpinned by its outstanding construction order book and unbilled sales. As at June 30 this year, the group’s outstanding construction orders stood at RM1.3 billion and unbilled property sales at RM710.6 million, which would provide earnings visibility for the next three years, according to MGB.

For FY2024, its construction division is looking at a RM600 million tender book, with 80% of projects comprising internal jobs from LBS Bina, Public Invest Research said in a Feb 20 report. “We note that its parent company, LBS Bina, is expecting new project launches worth RM2.3 billion in GDV, representing +35% bump y-o-y (RM1.7 billion GDV in 2023). That aside, MGB has ongoing negotiations on Rumah Idaman Selangorku development — we expect more details to be [announced] in 2HFY2024.”

RHB Research expects MGB to continue to chart solid growth of more than 10% in FY2024, backed by higher progress billings of certain projects, in addition to better property sales growth.

“With MGB’s precast venture in Saudi Arabia to take off, in addition to the possibility of the group scoring more affordable housing jobs in Selangor beyond the current 7,200 units, we view its valuation as undemanding, as its FY2025F PER of 7.6 times is -1SD below its five-year mean,” it said in a May 17 note. Catalysts include developing new property projects in Johor, as the group already has two projects in the state — Laman Bayu (Batu Pahat) and Pangsapuri Saujana Indah (15km from Johor Bahru’s customs, immigration and quarantine complex).”

Both Public Invest Research and RHB Research have a target price of RM1.16 for MGB. The stock is currently trading at 84 sen, valuing the group at RM494.1 million. The counter has climbed 21.74% over the past year.

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