• Keep BUY and MYR0.86 TP (64% upside), c.2% yield. While Malaysian Resources Corp’s 9M24 core profit of MY63m (>100% YoY) made up 80% and 93% of our and Street’s full-year estimates, we deem it to be within expectations as we expect the property arm’s performance to remain lukewarm in 4Q24. Overall, its manageable net gearing of c.0.27x (9M23: c.0.30) as of end 9M24 should help MRC gear up for anticipated infrastructure projects, possibly leading to a sizeable orderbook expansion.

• Results review. The construction arm’s EBIT saw a 65% YoY jump in 9M24 due to progress of the Light Rail Transit 3 (LRT3) project (97% financial progress) combined with the Muara Sungai Pahang Phase 3 flood mitigation project worth MYR280m (43% financial progress). Its property arm saw an operating loss of MYR16.8m in 9M24 (9M23 operating profit: MYR35.7m) due to completion of Sentral Suites and TRIA 9 Seputeh in Mar and May 2023, in addition to new projects that are in early stages, such as VISTA Gold Coast in Australia and Residensi Tujuh. Completed unsold units in Malaysia stood at MYR353m as at end 9M24 vs MYR554.6m at the end of 9M23.

• Unbilled construction orderbook as at end 9M24 stood at MYR15bn (including the MYR11bn Bukit Jalil Sentral project), providing earnings visibility of >3 years. Future job prospects may come from its MYR3bn orderbook, which includes large-scale solar plants in Perlis, Kedah, and Selangor, the Central Spine Road in Kelantan, and a water treatment plant in Tok Bali, Kelantan.

• MRC is planning MYR5.7bn GDV worth of launches in Malaysia , Australia, and New Zealand from now until the end of FY25. The VISTA project in Gold Coast (GDV: c.MYR1.5bn, launched in Apr 2023) has seen 35% of the GDV sold as of July (end 9M23: 10%). MRC achieved MYR637m of property sales in 9M24 vs its FY24 target of MYR877m. We think the target is within reach as Residensi Tujuh (GDV: MYR385m) has started contributing from 3Q24.

• No changes to earnings estimates as results were in line. Hence, we maintain our SOP-derived TP of MYR0.86, which includes a 4% ESG premium. Valuation remains relatively undemanding at 0.5x FY25F P/BV or -1SD from the Bursa Malaysia Construction Index’s 5-year mean P/BV.

• Key factors which may continue attracting interest in the stock include the projects under negotiation (not included in the MYR3bn tenderbook) such the reinstatement of five LRT3 stations, the redevelopment of Kuala Lumpur Sentral and Shah Alam Stadium along with Penang Sentral’s prospects being underpinned by the Penang LRT project.

• Downside risks: Slowdown in the property market, sluggish project rollouts.

Source: RHB Securities Research - 28 Nov 2024