News

News portals reported that MRCB has been awarded a RM32.5m power transmission contract by the Melaka Government and TNB. The project involves a 132KV power line from Pantai Siring to Pulau Besar and will take 2 years to complete.

The 4.2km transmission line will be specially constructed on 12 monopole steel structure instead of conventional lattice steel to blend in with the natural environment and enhance the aesthetic value of the area.

Highlights

Another small order…The latest project is MRCB’s 3rd contract win for the year. It is another small win for MRCB, following the RM80.8m contract to build Giant Hypermarkets (kindly refer to our report “Giant orders” dated 4 Oct-13). The size of the power transmission project makes up 6% of FY12’s construction and environmental revenue.

RM240m YTD… YTD, MRCB has secured RM243.3m, which makes up 30% of our annual order book replenishment assumption of RM800m for FY13.

Earnings visibility… With the latest award, we estimate that MRCB has RM1.24bn worth of projects, translating to 2.4x FY12’s construction and environmental revenue.

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 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; (6) Affected by new Shariah screening methodology.

Valuation

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

Source: Hong Leong Investment Bank Research - 24 Oct 2013