WHAT’S NEW

• Reviewing LRT3 project cost. To curb the spiraling cost which ballooned up to RM15b (vs RM9b previously), Prasarana has indicated its intention to take over the construction of the Light Rapid Transit 3 (LRT3) from its project delivery partners (PDP). (Source: The Star)

COMMENT

• Background. MRCB and George Kent were appointed by Prasarana as the PDPs for the LRT3 project with an approved construction budget of RM9b as well RM1b for land acquisition cost. The PDPs are responsible for the design and construction of LRT3, in addition to assuming the risks of cost overruns or delays. We understand the overall project milestone has reached a 10% progress rate to date.
• Cost escalation. Prasarana may seek additional budget from the government as the consortium currently has the approval to raise up to RM10b. To raise additional funds, the company may need cabinet approval. Cost escalation comes from design changes to the original LRT3 plan such as adjustments to accommodate new features and bigger capacity of 26 stations along the 37km line.
• Impact to MRCB. We believe MRCB would not be affected if Prasarana could not raise additional funds for the said LRT3 project as our forecast is based on the approved construction fees of RM9bil instead of RM15bil. At this stage, we believe the PDPs and Prasarana are in discussions to address this matter and there are no signs that Prasarana will take over the project from the PDPs to date. As for MRCB, the assumed earnings contribution from LRT3 is 3% of FY19F net profit and accounts for 4% of our SOTP valuation.

RECOMMENDATION

• Maintain BUY and target price of RM1.01. Our target price is based on a 20% discount to our SOTP valuation of RM1.26/share, implying 24.3x 2019F PE.

Source: UOB Kay Hian Research - 9 Jul 2018