Investment Highlights

• We maintain our HOLD call on MRCB with a revised FV of RM0.82 per share (from RM0.80), based on SOP valuations (Exhibit 1). We maintain our FY18-FY20 earnings forecasts. The FV upgrade is to reflect a higher valuation for the Eastern Dispersal Link (EDL).

• MRCB’s long overdue concerns over the LRT3 continuation and EDL compensation have now been resolved with a clearer picture. MRCB-George Kent Sdn Bhd (MRCB-GK) has accepted the LRT3 contract award for a revised sum while the government has allocated RM1.3bil in Budget 2019 as full compensation to MRCB for the abolishment of toll collection on MRCB's EDL.

• MRCB-GK received a letter of award from Prasarana to build the LRT3 for RM11.86bil that includes a contingency/provisional sum of RM400mil, which, if not utilised, will reduce the contract sum. To recap, the MRCB-George Kent JV in Oct 2018 announced it was notified by the government that the LRT3 project will continue at RM16.6 billion.

• We understand that the RM11.86bil amount is consistent with the RM16.6bil figure announced by the government previously, as the latest number is purely for civil works and it excludes land acquisition, interest during construction etc., amounting to RM4.8bil. Therefore, we made no changes to our estimates.

• Meanwhile, as mentioned in Budget 2019, the government will provide a compensation of RM1.3bil for the acquisition of EDL in Johor.

• So far, no notice has been given regarding the date of payment and the management is still negotiating with the government.

• We have previously factored in about RM1.2bil into our SOP valuations, but now with clearer information, we raise our valuations by RM100mil to RM1.3bil and our fair value revised to RM0.82 from RM0.80 previously.

• The government’s decision to continue the LRT3 and compensate for the EDL has cleared the uncertainties in MRCB; and thus provide better visibility for the future. We believe the outlook for MRCB remain stable premised on its strong property unbilled sales of RM1.6bil, a robust outstanding construction order book of RM4.8bil and outstanding LRT jobs of RM11.86bil.

Source: AmInvest Research - 8 Nov 2018