News

Last Friday, MRCB announced that they were awarded the Project Delivery Partner (PDP) role for the construction and completion of the Light Rail Transit Line 3 (LRT3) running from Bandar Utama to Johan Setia with its joint venture partner GKENT (on a 50:50 basis).

Comments

We were positively surprised that MRCB landed the PDP role for LRT3 as we did not expect them to bag the role given the fierce competition from the other two competitors namely NAZA TTDI-CSR ZhuZhou JV and UEM Group Bhd.

We believe that being the PDP for LRT3, which is worth RM9.0b will enable MRCB to secure more contract flows from LRT3 in the near-to-mid-term which will further boost its existing orderbook of c.RM1.7b. Additionally, the PDP role will easily add RM54m per annum to the group’s bottom line, assuming a clean 6% PDP fee from Prasarana.

Outlook

Apart from being the PDP for LRT3, MRCB plans to launch at least c.RM1.0b worth of development projects in the immediate-term, consisting of “affordable” residential in Kajang (GDV: RM234m), high-end residences near KLCC namely The Grid (GDV: RM387m), and office buildings in Putrajaya (GDV: RM336m). However, given the weak property market, we would not be surprised if the group scales back launches.

It has a remaining external construction orderbook of c.RM1.7b, coupled with c.RM1.7b unbilled property sales providing the group with at least two years of earnings visibility.

Forecast

No changes to our FY15-16E at this juncture as we are still waiting for more details on its LRT3’s PDP role.

Rating

Upgrade to MARKET PERFORM

Valuation

We are upgrading MRCB to MARKET PERFORM post its appointment as PDP for LRT3 with a higher TP of RM1.10 (previously, UP; TP: RM0.81, implying a historical low PBV of 0.86x) based on -2SD historical mean Fwd P/NTA of 1.17x on FY16E NTA/share of RM0.94. We believe the PDP role for LRT3 will raise its earnings profile in the mediumterm and may also see potential contract newsflow from LRT3. However, the share price has reacted sharply on this news amid weak market sentiment, which may result in profit-taking activities in the near-term.

Risks to Our Call

Weaker-than-expected property sales.

Higher-than-expected sales and administrative costs.

Negative real estate policies.

Tighter lending environments.

Source: Kenanga Research - 7 Sep 2015