KUALA LUMPUR (Sept 14): RHB Investment Bank Bhd has upgraded industrialised building system (IBS) precast manufacturer MGB Bhd to a "buy" at 74 sen, with a higher target price (TP) of 82 sen (from 58 sen), an 11% upside. 

In a research note, RHB analysts Eddy Do Wey Qing and Muhammad Danial Abd Razak said the upgrade is premised on renewed optimism about MGB post management meeting, with robust construction contract flows and a strong Rumah Indaman project launch pipeline. 

“MGB is set to achieve an RM1 billion contract replenishment target for the year. The TP (target price) implies 13 times FY21F P/E (price-earnings forecast for the financial year ending Dec 31, 2021, which is +0.25SD [standard deviation] from the five-year average KLCON [KL Construction Index] blended forward P/E), which we think is fair given the strong earnings trajectory, with further upside from additional government contracts secured beyond our assumption,” said Do and Muhammad Danial. 

According to the analysts, MGB has secured three projects from LBS Bina with a total value of about RM545 million year-to-date (YTD), beating RHB’s earlier estimate of RM500 million for the year. 

“MGB’s tender book is currently at RM1 billion, with an even split between government and internal projects, and we understand that the internal projects could come in as soon as this year. 

“Consequently, we raise our FY20 construction replenishment assumption by an additional RM500 million to RM1.05 billion, and for FY21-FY22 to RM600 million pa (per annum) from RM400 million pa,” they said.

Besides, Do and Muhammad Danial turned optimistic about MGB potentially clinching the remaining units of the Rumah Idaman project under its target of 10,000 units.

“We understand that the company is looking to launch all of the 10,000 Rumah Idaman units in FY21 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),” they said. 

Furthermore, they added that RHB's FY20F-FY22F earnings for MGB were raised by approximately 4%, 26% and 48% respectively after factoring in a larger contract replenishment assumption and more Rumah Idaman units.

However, both analysts also noted some key downside risks to their rating, which include a sharp increase in input cost (cement), delayed launches, management execution and failure to meet conditions precedent entailed in MGB’s Rumah Idaman proposed joint-venture (JV) agreement.

At 11.10am, shares in MGB had risen 3.38% or 2.5 sen to 76 sen, valuing the group at RM383.76 million. A total of 310,00 shares were traded.