• Still BUY, new MYR0.52 TP (SOP) from MYR0.55, 18% upside. 9M23 core earnings of MYR20.8m (-60% YoY) missed expectations at 44% of our and Street’s full-year projections. The negative deviation was partly on a higher-than-expected tax rate due to an FY22 tax under-provision, which was known in 3Q23. While we project a 13% YoY earnings drop for FY23, Malaysian Resources Corp estimates a 3-year earnings CAGR of 15%, supported by its strong orderbook-to-revenue cover ratio of >10x and landbank of 1,153 acres (GDV: MYR33bn).

• Results review. The construction segment saw a 43% YoY jump in 9M23 EBIT on higher progress billings for the Light Rail Transit 3 (LRT3) project (85% financial recognition as at end 3Q23). MRC’s property arm saw a 71% YoY EBIT contraction for this period due to the completion of Sentral Suites and TRIA 9 Seputeh in April and May. Completed unsold units reached MYR555m as at end 3Q23 but were slightly lower than end-2Q23’s MYR587m – indicating that sales are progressing.

• The end-9M23 outstanding construction orderbook was MYR16bn – including the MYR11bn Bukit Jalil Sentral (BJS) project – and provides >5 years of earnings visibility. Phases 1A and 1B of the BJS (GDV: MYR900m) may kick off in 4Q24 – providing jobs continuity, as LRT3 is 85% financially completed (End 2024 target completion). MRC’s c.MYR30bn tenderbook comprises three Mass Rapid Transit 3 (MRT3) packages (c.MYR25-29bn), a Kulim power plant (<MYR300m), and Johor’s Iskandar Bus Rapid Transit (<MYR400m). It excludes the Shah Alam Stadium redevelopment (demolition may start in 1H24) and Kuala Lumpur Sentral.

• Details of the reinstatement of the five LRT3 stations worth MYR4.7bn have yet to be finalised, but MRC’s portion could likely be worth c.MYR1.5bn (target operation: 2Q27). Meanwhile, its property arm continues to have bright prospects, owing to planned FY24 launches worth MYR1.7bn and MYR2.3bn in New Zealand and Malaysia. MRC’s VISTA project in Gold Coast, Australia (GDV: c.MYR1.2bn; launched in April), has seen sales progress of 12% as at 10M23 (end 2Q23: 3%). With MYR513m of property sales achieved in 10M23 (surpassing FY23’s MYR500m target), the group may continue to record better sales momentum ahead.

• We cut FY23F-25F earnings by 14.8%, 12%, and 6.8% as we raise our effective tax rate assumptions (but still expect the 4Q23 tax rate to normalise) and dial down on the property sales forecasts. Consequently, we arrive at a new SOP-based MYR0.52 TP, baking in a 0% ESG premium/discount based on a 3.0 ESG score. A near-term rerating catalyst would be securing the Kuala Lumpur Flood Mitigation Plan projects in Selangor – may be worth MYR500m and MYR1bn based on our estimates.

• The stock is trading at a 0.4x FY24F P/BV, >-1.5SD below the KLCON Index’s 5-year mean P/BV – undemanding in our view in light of the aforementioned points; hence, our BUY call. Key downside risks include a slowdown in the property market and sluggish project rollouts.

Source: RHB Securities Research - 28 Nov 2023