• Profile: MRCB is engaged in construction (niche strength in environmental projects), toll road operations, property development and investments. It is known for its transit-oriented developments (TOD) for example KL Sentral, Bukit Jalil City, Kwasa Damansara and Penang Sentral.

• HLIB raised its SOP TP from RM1.18 to RM1.26. HLIB raised the SOP derived TP from RM1.18 to RM1.26 (offers another 13.5% upside) after ascribing a higher P/E multiple of 15x (from 12x) to reflect its recovering construction division, higher contribution from PDP fees (mainly LRT3) and perception as an election play. Meanwhile, balance sheet will be in a better financial footing following the completed degearing exercise, which involved 1-for-1 rights issue @ RM0.79 together with 1 free warrant (strike price RM1.25) for every 5 rights subscribed. The exercise would slash MRCB’s net gearing to 36% from 114% based on 3Q17’s proforma.

• More than RM5bn outstanding order book. MRCB currently sits on an orderbook of RM5.3bn and management highlighted that the current tenderbook amounted to RM2.9bn with focus on more civil engineering and long term fee-based contracts. Coupled with ~RM1.2bn unbilled property sales, these numbers will provide the group at least four years of earnings visibility.

• Monetisation of EDL is a potential catalyst. Recall that during the Budget 2018 announcement, the government announced that toll collections for the Eastern Dispersal Link would be abolished from 1 Jan 18. Hence, we expect the government to buy out the expressway or compensate MRCB based on traffic flows on the highway. Management estimates that the disposal of EDL, Menara Celcom and Ascott could potentially transform its balance sheet into a net cash position, thereby in a much better position to execute its various catalytic projects such as embarking on the maiden launches of its key TOD projects – Kwasa Sentral and Bukit Jalil Sentral, both with a combined GDV of RM22.6bn.

• Potential triangle breakout. After tumbling 15.3% to RM1.11 from YTD high of RM1.31 (8 Jan), MRCB’s share price is ripe for further technical rebound, pending for a triangle breakout amid high lows pattern and upticks in technical indicators. A decisive breakout above RM1.13 (downtrend channel) will spur prices higher towards RM1.16 (50% FR) and RM1.20 (61.8% FR) levels before reaching our LT objective at RM1.27 (24 Jan high. Conversely, key supports are situated near RM1.08 (23.6% FR) and RM0.91 (1M low). A breakdown below RM0.91 will trigger further retracement towards RM0.87 (5 Oct low). Cut loss at RM0.90.

Source: Hong Leong Investment Bank Research - 19 Feb 2018