News

Awarded the construction contract for two Giant Hypermarkets for a total contract sum of RM80.8m whereby RM45.8m is for Giant Danau Kota, Setapak, and RM35m is for Giant Kampar, Perak. The hypermarkets are expected to be completed by Oct-14 and Aug-14 respectively.

Highlights

Small order…The latest contract is a small one, making up circa 7% of its previous outstanding order book of about RM1.13bn and circa 15% of FY12’s construction and environmental revenue.

Second win… The project is MRCB’s 2nd contract win for the year, bringing YTD jobs won to RM210.8m, which makes up 26% of our annual order book replenishment assumption of RM800m for FY13.

Missing estimates… Based on its circular during the MRCB-Gapurna merger, the estimated contract size for both hypermarkets was supposed to be RM105.7m, 24% smaller than expected. Earnings visibility… With the latest award, we estimate that MRCB has about RM1.21bn worth of projects, translating to 2.3x FY12’s construction and environmental revenue. We estimate that approximately 66% (or circa RM800m) of its outstanding order book is made up of the LRT extension project.

Risks

Execution risk; Regulatory and political risk; Rising raw material prices; and Unexpected downturn in the construction and property cycle.

Forecasts

Unchanged as the contract is already part of our RM800m FY13 annual order book replenishment assumption.

Rating

BUY

We remain optimistic on MRCB’s longer term prospects. Hence, we maintain our long term BUY call on the company.

Positives: (1) Success in acquiring PJ Sentral land; (2) New construction contract wins; (3) Acquiring strategic land banks; (4) Favourable buyout terms for EDL.

Negatives: (1) Concerns over execution for projects; (2) Concerns over take-up rates for property launches; (3) Delays by the Government to buyout EDL; (4) High net gearing levels; (5) Short-term earnings dilution arising from share swap with Nusa Gapurna.

Valuation

Maintain Target Price of RM2.14 based on Sum-of-Parts Valuation (see Figure #1).

Source: Hong Leong Investment Bank Research - 4 Oct 2013