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Keep BUY, new MYR0.43 TP from MYR0.44, 23% upside, 1% FY22F yield. 1H22 core earnings of MYR28m (>+100%YoY) were in line with our estimates at 48% of full-year projections but exceeded Street at 60%. Overall performances were underpinned by normalising operating conditions following the transition to endemicity. With bright job prospects in hand, valuation appears undemanding, with the stock trading at 20.4x FY23F P/E, which is -1SD from the 5-year mean.
Results review. The substantial growth in 2Q22 earnings was on overall revenue, which expanded by >100% YoY to MYR700m. This was mainly due to the consolidation of the Light Rapid Transit 3 (LRT3) project company, Setia Utama LRT3, which took Malaysian Resource Corp’s ownership to 100% and allowed it to recognise 100% of project earnings. Progress from projects such as Menara KWSP, Sungai Besi-Ulu Kelang Elevated Expressway, and PR1MA Brickfields also contributed to 2Q22 revenue. This helped offset some impact from labour shortages. The property development segment also witnessed EBIT growth to the tune of >100% YoY in 2Q22, backed by higher property sales of MYR227m (2Q21: MYR56m). The stronger property sales came from on-going projects, namely Sentral Suites at KL Sentral, the 9 Seputeh mixed residential development at Jalan Klang Lama, and Alstonia at Bukit Rahman Putra.
Outlook. MRCB’s construction orderbook as at end 2Q22 stood at MYR18.4bn (including the Bukit Jalil Sentral project), which provides >5- years’ earnings visibility. Replenishment-wise, it is in active talks with the Selangor State Government with regard to the Shah Alam Stadium project (estimated value: MYR787m) and details on the land swap in return for refurbishment works, which could likely be known by end Oct/Nov 2022. Furthermore, MRCB has received notification from Prasarana in relation to the re-instatement of omitted works for LRT3 covering five stations and a few bus terminals (amongst others) with a c.MYR1bn price tag. As alluded before, MRCB is a frontrunner for Mass Rapid Transit 3 civil works packages (expected rollout: 4Q22), given its status as one of the largest bumiputera contractors. This is in addition to its manageable net gearing level of 0.3x Its property development arm is also set to grow with a healthy level of unbilled sales of MYR706.7m as at end 2Q22 (1Q22: MYR818.3m).
Earnings and valuation. There are no changes to our estimates, as earnings were within expectations. Our TP is revised to MYR0.43 following the lower TP for Sentral REIT (SENTRAL MK, NEUTRAL, TP: MYR0.97) in our SOP valuation – after ascribing a 0% ESG premium/discount on the intrinsic value based on our in-house proprietary scoring methodology. We believe MRCB will take the necessary steps to address the labour shortages, ensuring that productivity levels remain optimal. A further rerating catalyst includes its venture into renewable energy, which is pending final discussions with the authorities. Key downside risks include a prolonged slowdown in the property market and project delays.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....