Positive views on MRCB’s triple job win

  • Business
  • Friday, 30 Oct 2015

PETALING JAYA: Shares in MALAYSIAN RESOURCES CORP Bhd (MRCB) jumped to a five-month high after analysts raised the counter’s target price, buoyed by recent contract wins and expectation of new awards next year.

The stock surged 7 sen, or 5.9% yesterday to close at RM1.27.

CIMB Research, in a report yesterday, said MRCB’s order book growth story remained intact with more potential contract wins in 2016, adding that the subdued property sentiment in the medium term would be mitigated by the new major strategic land deals, which should emerge as longer-term positive.

The research house raised its target price to RM1.40 from RM1.19 as it rolled it over to end-2016, still pegged to a 30% revalued net asset valuation discount.

“These wins are rerating catalysts with potentially more construction-driven catalysts ahead. More restructuring and asset divestment moves are likely catalysts too,” CIMB Research said.

MRCB on Wednesday announced that it had secured a RM1.6bil land swap deal to refurbish and transform the Bukit Jalil National Sports Complex (NSC) into an integrated development with a gross development value of RM14.6bil over 16 years from 2018.

MRCB had also entered into a RM270mil joint-venture agreement to acquire 53.3 acres to be transformed into a mixed development, which will be known as Cyberjaya City Centre, with a potential gross development value of RM5.3bil over the next seven years.

The upcoming city centre sits on a 141-acre freehold land parcel with an estimated gross development value (GDV) of RM8bil-RM10bil. The project would be developed over the next 15 years.

The group has also secured a project management and engineering, procurement, construction and commissioning (EPCC) contract for the development of 29.8 acres within the Kwasa Township in Sungai Buloh.

“This is largely a construction contract that substantially increases its order book by more than four times to RM3.9bil, although execution is over a 12-year period from 2016,” CIMB Research.

But beyond that, the job would require minimal funding by MRCB as the bulk of the cost would be borne by the project owner.

Meanwhile, HLIB Research said although the management contract with Kwasa Utama was sizeable at RM3.1bil, the impact to earnings in the near term was unlikely to be profound as its duration was spread across 12 years.

“That said, we are positive on this contract win as it would provide MRCB a steady stream of work flow for over a decade. Assuming work is conducted equally across its targeted duration, the contract would feed MRCB with RM262mil worth of jobs per annum from 2016 to 2027,” said HLIB Research, who recommended a “buy” rating on the company with a target price of RM1.36 based on the sum-of-parts method implying 31.3 times FY15 price earnings.

Kenanga Research, however, said MRCB’s landbanking ambitions and construction contracts’ being paid in kind would further tax the group’s cashflow.

It said the company’s “already high net gearing” of 1.12 times in the second quarter of 2015 would be further weakened to 2.27 times assuming full-debt funding of these deals. The probability of a cash call had increased while returns from these projects would take quite a while to materialise, it added.

“While we laud management’s capabilities in securing such attractive deals such as landbank and construction orderbook replenishments in such short span of time, we are re-iterating our concerns on its balance sheet whereby its net gearing stands at 1.12 times as of the second quarter, which is already relatively high compared with its peers that ranges between 0.30 times-0.40 times,” Kenanga Research said.

Based on simple extrapolation, MRCB would have to fork out a whopping RM2.65bil to fund its landbank replenishment ambitions, it said.

Currently, the research house said the company was “under review” while pending clarification from the developer’s management as to how it would finance its landbanking ambitions. Its previous rating was “market perform” with a target price of RM1.10.

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