• Keep BUY, with new MYR0.86 from MYR0.80, 56% upside and c.2% yield 1H24 core profit of MY54m (>100% YoY) exceeded our and Street’s earlier full year estimates of MYR41m and MYR40m. The positive deviation was due to the stronger-than-expected performance of the construction arm. Overall, Malaysian Resources Corp’s manageable net gearing of c.0.27x (vs c.0.34x in 1H23) as at end 1H24 may enable it to gear up for anticipated infrastructure projects – possibly leading to a sizeable orderbook expansion.

• Results review. The construction arm’s EBIT saw a 146% YoY jump in 1H24 due to progress of the Light Rail Transit 3 project (93% financial progress) combined with the Muara Sungai Pahang Phase 3 flood mitigation project worth MYR280m. Meanwhile, its property arm saw an operating loss of MYR14.5m in 1H24 (1H23 operating profit: MYR33m) due to the completion of Sentral Suites and TRIA 9 Seputeh in Mar and May 2023 plus delays due to timing difference as a result of strata title issuance. Completed unsold units in Malaysia were at MYR411m as at end 1H24 vs MYR587m as at end 1H23.

• MRC’s active construction orderbook as at end 1H24 stood at MYR15.7bn (including the MYR11bn Bukit Jalil Sentral project), providing earnings visibility of >3 years. The group recently clinched a MYR250m job for the Sungai Langat Phase 2 flood mitigation project. We view the group hitting the FY24 new job target of MYR5bn backed by its c.MYR34bn tenderbook which comprises the Pan Borneo Package 34, Penang Airport Expansion and a flood mitigation project in Selangor among others.

• MRC’s property arm plans MYR5.7bn GDV worth of launches in Malaysia, Australia and New Zealand for FY24F-25F. The VISTA project in Gold Coast, (GDV: c.MYR1.5bn) (launched in Apr 2023) has seen 32% of GDV sold as of July (end 1H23: 3%). MRC has achieved MYR497m of property sales in 1H24 vs its FY24F target of MYR800m. We view the target is within reach as Residensi Tujuh (GDV: MYR385m) will start contributing from 3Q24.

• We increase FY24F-26F earnings by 94%, 63% and 60% as we adjust higher margins and progress billings for MRC’s construction jobs along with dialling down on the effective tax rate which was too conservative previously. In particular, we raise FY25F earnings for the construction arm (which constitutes 17% of the SOP valuation prior to the holding company discount) to MY55m from MYR30m (83% change). Hence, we arrive at a new SOP- derived TP of MYR0.86 (from MYR0.80) which bakes in a 4% ESG premium. Valuation remains relatively undemanding – trading at a 0.5x FY25F P/BV, or -1SD 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, the redevelopment of KL Sentral along with Penang Sentral’s prospects being underpinned by Penang Light Rail Transit project. Key downside risks include a slowdown in the property market and sluggish project rollouts.

Source: RHB Research - 2 Sep 2024