Highlights

MIDF Sector Research

Author: sectoranalyst   |   Latest post: Fri, 22 Mar 2019, 4:56 PM

 

Malaysian Resources Corporation Berhad - Updated Timeline to Allay Concerns on Prolonged Delay

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INVESTMENT HIGHLIGHTS

  • LRT3 works will start in 2HFY19
  • The update is timely to allay concerns on the delay
  • Forward earnings supported by strength in orderbook
  • Reiterate BUY call with an unchanged TP of RM0.83

According to a news source, MRCB was quoted as saying the works for LRT3 will hit its restart button in 2HFY19. We recall that its recent progress has tapered off, due to the re-negotiation on costs, designs and job scopes. This was after the government approved its continuation in July 2018, albeit at a reduced cost. Notably, a price tag of RM11.9b (after -47% reduction) was arrived for civil works coupled with RM4.8b set aside mainly for land acquisition.

According to management, contributions from LRT3 will begin to kick-in in 2HFY19. We understand that the group had to defer expected contribution from last year, given the recent delay of the project. We opine it firms up our earlier belief, in which contribution from LRT3 will likely to be dismal in the immediate term.

Works of LRT3 will continue in 2HFY19. To recall, the JV Co contributed about RM20.7m in PAT for 9MFY18. While it was evident that contribution was higher in comparison to the previous year at RM7.2m, we ought to highlight that the amount recorded was significantly lower than management’s expectation due to deferment of progress billings. Despite that works will only continue in 2HFY19, we should note that the latest project update is rather timely to allay the concerns of over its prolonged delay.

Current business prospect. Its long-term transformation programme has been successful, with notable achievements from 1) the sale of EDL highway to the government; and 2) stake divestment in Bukit Jalil Sentral development to EPF. The impact from these transactions is farreaching, enabling the group to move forward with stronger balance sheet. The strength is further coupled with 1) low gearing of approximately 20% (in 2018); 2) growing land bank; and 3) robust orderbook of ~RM20b to provide strong long-term earnings base.

Impact to earnings. We maintain our assumptions, given our revision on FY19 earnings recently.

Recommendation. We reiterate our BUY call with TP of RM0.83, based on our SOP-driven valuation. Downside risks to our calls are 1) slower than expected progress works; and 2) lower than expected property sales.

Source: MIDF Research - 15 Feb 2019

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