• Still BUY, with unchanged MYR0.80 TP, 15% upside. Malaysian Resources Corp’s 1Q24 core profit of MYR3m (-65% YoY) missed our and Street’s estimates, making up 6% and 5% of full-year projections. The negative deviation was due to a slower property segment and higher-than-expected tax rate (of 84%). On the bright side, its better net gearing of c.0.20x in 1Q24 (vs c.0.37x in 1Q23) may enable MRC to gear up for the anticipated mega projects – possibly leading to a sizeable orderbook expansion.

• Results review. The construction segment saw a 146% YoY jump in EBIT for 1Q24 due to cost provisions being written back to the bottomline for the Light Rail Transit 3 (LRT3) project, which is 90% complete. Meanwhile, its property arm saw a 66% YoY EBIT contraction in 1Q24 following the completion of Sentral Suites and TRIA 9 Seputeh in 2Q23. Nonetheless, completed unsold units reached MYR347.5m as at end of 1Q24, lower than the MYR389.4m as at end of 4Q23 – indicating that sales are progressing.

• MRC’s active construction orderbook as at end 1Q24 stood at MYR15.3bn (including the MYR11bn Bukit Jalil Sentral (BJS) project), providing earnings visibility of more than 5 years. The Phase 1A and 1B of the BJS project (GDV: MYR900m) may kick off in 4Q24 – providing job continuity as LRT3 is 90% financially completed (target completion: end 2024). The group’s c.MYR33bn tenderbook comprises the three Mass Rapid Transit 3 packages (c.MYR25- 29bn) and Pan Borneo Highway Sabah Phase 1B among others.

• MRC’s property arm plans MYR2.3bn and MYR1.3bn worth of launches in Malaysia and New Zealand for FY24F. The group’s VISTA project in Gold Coast, Australia (GDV: c.MYR1.5bn, launched in Apr 2023) has seen 29% of GDV being sold as of Apr 2024 (end 2Q23: 3%). MRC has achieved MYR268m of property sales in 1Q24 vs its FY24 target of MYR800m. We view the target is within reach as Residensi Tujuh (GDV: MYR385m) will start contributing from 2Q24.

• We cut FY24-26F earnings by 13-14% as we bump up our tax rate assumptions and dial down on property sales recognition. We also take the opportunity to roll forward our valuation base year to FY25F (from FY24F). The net effect from the downward earnings adjustment and rolling forward our valuation base still brings us to a MYR0.80 TP, which bakes in a 4% ESG premium. Valuation remains relatively undemanding – trading at a 0.7x FY24F P/BV, or -2SD from the KL Construction Index’s 5-year mean P/BV.

• Key factors which may continue attracting interest in the stock include the reinstatement of five LRT3 stations and other packages for rolling stock and depot (value in excess of MYR1.5bn), the redevelopment of Kuala Lumpur Sentral (likely to begin end-FY24), along with Penang Sentral’s prospects being underpinned by the Penang Light Rail Transit project. Key downside risks include a slowdown in the property market and sluggish project rollouts.

Source: RHB Research - 31 May 2024