• Still BUY, new MYR0.70 TP from MYR0.74, 20% upside. After excluding the one-off gains from the sale of buildings and adjoining land, Malaysian Resources Corp saw a core net loss of MYR66.2m in FY23 – missing our and Street’s earnings estimates of MYR40m and MYR39m. The negative deviation was our billings assumptions, which were optimistic. On the bright side, MRC’s better net gearing of c.0.18x in FY23 vs FY22’s c.0.34x may enable the group to gear up for anticipated big ticket infrastructure projects – possibly leading to a sizeable orderbook expansion going forward.

• Results review. The construction segment saw a 25% YoY jump in EBIT for FY23 due to higher progress billings of the Light Rail Transit 3 (LRT3) project (88% financial recognition as of end 4Q23). Meanwhile, its property arm saw a 16% YoY EBIT contraction for FY23 due to the completion of Sentral Suites and TRIA 9 Seputeh in 2Q23. Completed unsold units reached MYR389.4m as at end 4Q23, which is lower than the MYR587m booked as at end 2Q23 – indicating that sales are progressing.

• MRC’s active construction orderbook as at end FY23 stood at MYR15.7bn – including the MYR11bn Bukit Jalil Sentral (BJS) project – which provides earnings visibility of >5 years. Phases 1A and 1B of the BJS project (GDV: MYR900m) may kick-off in 4Q24 – providing job continuity, as LRT3 is 88% financially completed (end-2024 target completion). The group’s c.MYR30bn tenderbook comprises three Mass Rapid Transit 3 packages (c.MYR25- 29bn), a power plant in Kulim (<MYR300m), and Johor’s Iskandar Malaysia Bus Rapid Transit (<MYR400m). It excludes redevelopment of the Shah Alam Stadium (demolition may start in 1H24) and Kuala Lumpur Sentral.

• Meanwhile, MRC’s property arm continues to have bright prospects – owing to its planned launches worth MYR1.3bn and MYR2.3bn in New Zealand and Malaysia for FY24. The group’s VISTA project at Australia’s Gold Coast (GDV: c.MYR1.5bn; launched in Apr 2023) has seen sales progress of 16% as of Jan 2024 (end 2Q23: 3%). With MYR831m of property sales achieved in FY23 (surpassing the full-year target of MYR500m), MRC may continue to record better sales momentum going forward.

• We cut FY24F-25F earnings by 12-13% as we tone down our billings assumptions for its construction jobs and introduce our FY26F bottomline with a job replenishment target of MYR1bn. As a result, we arrive at a new SOP-derived TP of MYR0.70, baking in a 0% ESG premium/discount based on an ESG score of 3. A near-term rerating catalyst would be the group’s venture into Sabah via the Pan Borneo Highway Sabah Phase 1B project – worth c.MYR15.7bn in total and spread over 19 work packages.

• The stock’s valuation remains relatively undemanding – trading at 0.6x FY24F P/BV or -2SD from the KL Construction Index’s 5-year mean, justifying our BUY call. Key downside risks include a slowdown in the property market and sluggish project rollouts.

Source: RHB Research - 1 Mar 2024