INVESTMENT HIGHLIGHTS

• MRCB was awarded a package worth RM323m

• Project to commence on Feb 4, and expected to complete within 14 months.

• SUKE will serve as a link between existing major highways and roads in the Klang Valley

• Current orderbook estimated at RM19.7b

• Maintain BUY call at unchanged TP of RM0.83

MRCB was awarded a package worth RM323m. Malaysian Resources Corp Bhd (MRCB) announced that it has received a letter of acceptance from Turnpike Synergy Sdn Bhd yesterday. Under the contract, MRCB is to undertake Package CA2 of the Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) project, with estimated value at RM323m.

Project to commence on Feb 4. The award involves the construction of mainline and other associated works from CH.2400 to CH.4200 of SUKE. Works are scheduled to complete in April 2020, which is within 14 months from the date of site possession on Feb 4.

Background of project. SUKE is a 31.8km, three-lane, dual carriageway expressway that will serve as a link between existing major highways and roads in the Klang Valley. Among the 7 highways/main road SUKE will be linked to are 1) KESAS, 2) Kuala Lumpur Seremban Highway, 3) Sungai Besi Highway, 4) Cheras-Kajang Highway, 5) MRR2, 6) AKLEH, and 7) DUKE. Overall, the construction and land acquisition costs are estimated at RM4.3 billion and RM1.14 billion, respectively.

Current orderbook estimated at RM19.7b. MRCB’s outstanding orderbook is estimated at circa RM19.4b. The new contract award will add up another RM323m in value, for a total unbilled sum of RM19.7b. The amount involves works for buildings, transmission lines, infrastructure and fee-based orders.

First contract win for MRCB this year. Based on our assumptions, the contract will fetch circa RM15m-RM19m of full year profit contribution, arrived after imputing 6%-7% net margin of the total project value. The quantum has already been captured in our job wins assumption for FY19; hence no changes to our earnings forecast.

Recommendation. We expect the construction segment to show some improvement this fiscal year. Previously, we understand that the work progression of LRT3 has slowed down in October 2018, pending the signing of a new contract. Accordingly, we believe the recent contract agreement signed between MRCB-GK JV and Prasarana denotes a positive signal on future progress, thus allay uncertainties on the project. We reiterate our BUY call on MRCB with TP of RM0.83, based on our SOP-driven valuation.

Source: MIDF Research - 29 Jan 2019