The Edge Financial Malaysia, 05 August 2014 - MRCB rides on significantly larger property GDV of RM19.5Bil

The Edge Financial Malaysia, 05 August 2014

Malaysian Resources Corp Bhd
(Aug 4, RM1.69)
Maintain buy with target price of RM2.26:
The completed acquisition of four pieces of land from Nusa Gapurna Development Sdn Bhd as well as the recent award of the Kwasa Damansara Project MX-1 have boosted MRCB’s already bulging and very strong property gross development value (GDV) to RM19.5 billion, placing it just behind key property developers S P Setia Bhd, Tropicana Corp Bhd, Sunway Bhd, IJM Land Bhd and IOI Properties Group Bhd, but ahead of UOA Development Bhd.

MRCB has yet to announce any major new engineering and construction (E&C) contract wins since October 2013. However, pending the outcome of its tenders, we expect the group’s outstanding order book of RM1.14 billion as at March 31, 2014 and internal building jobs to keep the E&C division busy until 2019.

The group’s continued focus on niche high-rise mixed development and transport terminals should provide opportunities for further additions to its property investment portfolio, which stood at approximately RM3.4 billion as at the end of first quarter ended March 31 of financial year 2014 (1QFY14).

Rising profits as well as selected monetisation of non-core assets and potential conversion of 2013/18 warrants are alternative sources of funding to grow its property development and investment portfolio and execute the MX-1 project.

Meanwhile, a local daily reported that the government had decided not to acquire the Eastern Dispersal Link (EDL) following a two-year study. MRCB has yet to make an announcement on this matter. It is also unclear at this stage whether the toll hike for Johor from Aug 1 will accrue to MRCB or if the compensation of almost RM12 million per month will continue to be paid by the government.

We expect property launches between now and 2017 to underpin group profits until 2019 or 2020. We maintain our 2014 to 2016 forecasts (earnings per share adjusted for enlarged issued capital of 1.76 billion shares), “buy” call and target price of RM2.26, which now implies a 11% discount to our revised revalued net asset valuation of RM2.54. — Affin Investment Bank, Aug 4