• Keep BUY, with new MYR0.45 TP from MYR0.43, 41% upside and c.2% FY23F yield. 9M22 core earnings of MYR51.8m (>100% YoY) exceeded our and Street estimates at 88% and 98% of full-year projections. Positive deviation was due to stronger-than-expected property segment and commendable construction progress in the quarter. With bids submitted for the three Mass Rapid Transit 3 (MRT3) civil work packages (backed by its bumiputera contractor status), combined with proposals for flood mitigation and waste-to-energy (WTE) projects, we believe job prospects are bright.

• Results review. The >100% YoY growth in 3Q22 earnings to reach MYR23.7m was partly due to the consolidation of the Light Rapid Transit 3 (LRT3) project company, Setia Utama LRT3, which took MRC’s ownership to 100% and allowed it to recognise 100% of project earnings. On further scrutiny, the LRT3 project reached physical progress of 77% as at end 3Q22 (target 80% completion by end FY22) while the MRT2 V210 package worth MYR497m was completed during 3Q22. Likewise, the property development segment witnessed solid EBIT growth of >100% YoY in 3Q22, backed by higher property sales of MYR92m (3Q21: MYR57m). The stronger property sales came from ongoing projects, namely Sentral Suites at KL Sentral, the 9 Seputeh mixed residential development at Jalan Klang Lama, and Alstonia at Bukit Rahman Putra.

• Outlook. MRC’s construction orderbook as at end 2Q22 stood at MYR17.9bn (including the Bukit Jalil Sentral project), which provides over five years’ earnings visibility with an open tenderbook size of MYR30bn. Replenishment-wise, the refurbishment of the Shah Alam Stadium (estimated value: MYR787m) is expected to begin in 1Q23 but details on the land swap in return for refurbishment works have yet to be disclosed. As alluded before, MRCB is a frontrunner for the MRT3 civil works packages (expected rollout: 1Q23), given its status as one of the largest bumiputera contractors. This is in addition to its manageable net gearing level of 0.37x Its property development arm is also set to grow with a healthy level of unbilled sales of MYR624m as at end 3Q22 (2Q22: MYR706.7m), coupled with launches worth MYR2.1bn in GDV terms.

• Earnings and valuation. We revise our FY22F-24F earnings upwards by 14%, 6% and 4% as we bake in higher revenue assumptions, particularly for its construction arm. As such, our TP is revised to MYR0.45 (from MYR0.43) after ascribing a 0% ESG premium/discount on its intrinsic value based on our in-house proprietary scoring methodology. A rerating catalyst includes its venture into renewable energy, which is pending final discussions with the authorities. Apart from that, the potential re- instatement of omitted works for LRT3 worth c.MYR1bn could provide further upside to its orderbook replenishment.

• Key downside risks include a prolonged slowdown in the property market and project delays.

Source: RHB Research - 1 Dec 2022