News

• Secures 3 contracts at Desaru. MRCB announced that it has been awarded 3 contracts in Desaru totalling RM485m. They comprise of a convention centre (RM61.4m), 386 room Desa Desaru Resort (RM212m) and 275 room Westin Desaru Resort (RM211.6m). The contract was awarded by Destination Resorts and Hotel, a subsidiary of Khazanah Nasional. Construction period is expected to take between 19 to 21 months (i.e. completion by Jan-Mar 2017).

Comments

• Strong start for job wins. These contracts mark MRCB’s first for FY15 (FY14: RM338m). Last year, MRCB also won a similar contract for a resort in Desaru worth RM141m. With this job in hand, we estimate MRCB’s orderbook to stand at RM1.6bn, implying a healthy cover ratio of 3x on FY14 construction revenue.

• Top contender of LRT3 PDP role? Earlier this week, an article from The Edge Financial Daily reported that 3 parties have been shortlisted for the LRT3 (RM9bn) PDP role. They are: (i) a JV between Naza TTDI and a Chinese entity; (ii) MRCB-George Kent JV and; (iii) UEM Group. We reckon that the MRCB-George Kent JV is a top contender for the job. Track record wise, MRCB has undertaken the Puchong stretch of the ongoing LRT extension and successfully developed the KL Sentral integrated transport hub. George Kent on the other hand is involved in the systems works for the LRT extension.

Risks

• EPS dilution from an inevitable looming cash call.

Forecasts

• These contract wins has already met 97% of our FY15 full year target of RM500m. Nonetheless, we keep our estimates unchanged for now as job wins for MRCB have historically, been rather lumpy in nature.

Rating

BUY TP: RM1.70

• We are giving MRCB’s new management the benefit of the doubt that it can successfully turn the company around in the long term. Catalysts include successful launch of Kwasa Damansara and winning the PDP role for LRT3.

Valuation

• Unchanged TP of RM1.70 is based on the SOP method which implies 39.1x FY15 PE but a more palatable 25.7x on FY16 once earnings momentum starts to set in.

Source: Hong Leong Investment Bank Research - 25 Jun 2015