PETALING JAYA: Malaysian Resources Corp Bhd’s (MRCB) earnings are likely to pick up towards the fourth quarter, spurred by better recognition from its LRT3 project.
Hong Leong Investment Bank (HLIB) Research, in a report yesterday, said the completion rate of its LRT3 project stood at 30%, with 40% targeted by end-2020.
“The ongoing re-measurement process (originally slated to conclude by mid-2020) coupled with slow work progress has hampered its earnings recognition so far.
“Realistically, management is guiding for stronger bottomline contribution materialising towards the back end of 2020.
“At full pace, LRT3 contribution is RM15mil to RM20mil per annum, by our estimation.”
Additionally, MRCB expects its property segment to be the key earnings driver this year, driven by the handover of the remaining 92 units at its 1060 Carnegie project; as well as the construction progress of the group’s Sentral Suites and TRIA, 9 Seputeh development.
“While the ongoing handover at 1060 Carnegie is expected to boost earnings this year, recognition could come in towards the end 2020 due to renewed lockdowns in Melbourne.”
Separately, MRCB has also announced a RM5bil perpetual sukuk muharabah programme with a distribution rate of 4.2%.
The programme was given an “AA-” preliminary rating with a stable outlook by the Malaysian Rating Corp Bhd (MARC).
In a statement, MARC said it had reviewed the final documentation for the programme and is satisfied that the terms and conditions have not changed in any material way from the draft documentation on which the preliminary rating was based.
Commenting on the rating, HLIB said the first tranche will be directed towards retiring its existing borrowings (weighted average interest rate of 5.2%), thereby easing its interest burden.
“In our view, the issuance adeptly capitalises on low interest rates and robust market appetite for risk assets to raise cash given ongoing business uncertainty.”
The research house said MRCB’s orderbook stands at RM15.1bil (ex-equity accounted LRT3), translating to a sector high of around 22 times cover (mostly long term jobs).
“The management guided that operations are normalising with productivity levels at 70% (compared with pre-movement control order). Nonetheless, a key emerging risk is labour constraints due to the freeze in foreign worker recruitment.
“This, coupled with standard operating procedure compliance should impede a full normalisation in productivity levels.
“Tenderbook stands at an unchanged RM2.5bil (80% building; 20% infrastructure). Included in this are rather smallish East Coast Rail Line jobs where we reckon award conversion is marginally beneficial given its sizable orderbook.”
Additionally, HLIB said MRC was optimistic about its waste-to-energy (WTE) prospects.
“We note that this is against a backdrop of supportive government policies where the government plans to build six WTE plants by 2021. Based on checks, project internal rate of returns typically fall in the range of 10% to 12%, ” the research house said.
Did you find this article insightful?