MALAYSIAN RESOURCES CORP BHD

By Kenanga Research Outperform (maintained) Target price: RM1.14

KENANGA Research has raised Malaysian Resources Corp Bhd’s (MRCB) financial year 2018 (FY18) forecast earnings by 49% after the company fixed its right issue price at 79 sen and secured a new contract amounting to RM58.9mil to construct a stadium in Larkin, Johor.

According to the research firm, the issue price of 79 sen represents a 20.2% discount to its theoretical ex-all price of 99 sen.

“Based on the issue price of 79 sen, MRCB is looking to raise RM2.25bil from the exercise instead of RM2.85bil from its earlier proposed issue price of RM1 due to weak market conditions.

“The exercise will bring down its existing net gearing of 0.99 times (as of 2Q17) to 0.24 times,” said Kenanga.

On the Larkin stadium construction, Kenanga said it was neutral on the job win as it was within its order-book replenishment assumption of RM1bil.

MRCB has to date won RM467.9mil worth of jobs, making up 47% of Kenanga’s orderbook replenishment of RM1bil.

Apart from the stadium job, it also announced the contract win for MRT2 station works (package S210) totalling to RM145.8mil.

This, according to Kenanga, has no impact on its FY17-18E earnings as it has already factored this in its estimates given that work package S210 is part of package V210 worth RM648mil that the firm secured last year.

Moving into FY17, MRCB is maintaining its sales target at RM1.2bil, banking on planned launches of Sentral Suites, 9 Sputeh phase two, Bukit Rahman Putra and Bandar Sri Iskandar.

“MRCB’s remaining external construction order book stands at about RM7bil. Coupled with about RM1.5bil unbilled property sales, these numbers will provide the group at least four years of earnings visibility,” noted Kenanga.

Kenanga kept its “outperform” call on MRCB, but with a lower sum-of-parts driven target price of RM1.14, from RM1.23 previously, after accounting a lower rights issue price of 79 sen.

“We are positive the rights issue exercise will bring MRCB back to a better financial footing coupled with the potential sale of EDL highway, which would be an upcoming catalyst for the stock,” Kenanga said. Downside risks include weaker than expected property sales, higher-than-expected administrative cost, negative real estate policies and tighter lending environment.