Investment Highlights

• We maintain our HOLD call on MRCB with a revised FV of RM0.83 per share (from RM0.82), based on SOP valuation (Exhibit 2). We maintained our FY18-FY20 earnings forecasts. The FV revision is to reflect a higher valuation for the Eastern Dispersal Link (EDL).

• As part of Budget 2019, the government has allocated RM1.3bil as full compensation to MRCB for the abolishment of toll collection on MRCB's EDL.

• The EDL contract is formally terminated today with MRCB’s announcement that it had entered into a termination and settlement agreement with the Government of Malaysia whereby MRCB will receive a compensation of RM1,325.8mil and the sum will be paid by via bank transfer within 14 days.

• As at 8 November 2018, the total cost and net book value of the EDL service concession asset is approximately RM1,326.57mil and RM1,135.28mil respectively.

• Proceeds will be mainly used for repayment of borrowings (Exhibit 1).

• The compensation receipts of RM1,325.8mil will result in interest savings of about RM65-78mil for FY19 (based on cost of financing of around 5%-6%) which we already included into our forecast earlier, and we leave our numbers unchanged.

• Meanwhile, MRCB’s financial leverage will be improved with its net gearing reduced from 0.55x in FY17 to 0.22x after receiving the compensation of RM1,325.8mil.

• We have previously factored in about RM1.3bil into our SOP valuations. Now, with official numbers being announced, we raise our valuations by RM25.8mil to RM1,325.8mil and our fair value will be revised to RM0.83 from RM0.82 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 remains 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 - 13 Nov 2018