MALAYSIAN RESOURCES CORP BHD
By CIMB Research Rating: Hold Target price: RM1.00
IN view of limited medium-term catalysts for Malaysian Resources Corp Bhd (MRCB), CIMB Research maintains its “hold” rating on the construction group, with an unchanged target price of RM1.
The brokerage said a key upside risk for MRCB is stronger-than-expected contract wins, while downside risks include weaker earnings.
CIMB Research says its adjusted realised net asset value (RNAV)-based target price incorporates the dilution from the rights issue and outstanding warrants. It narrows its RNAV discount from 30% to 20% due to the diminishing overhang on the stock following the rights issue.
MRCB’s one-for-one rights issue went “ex” on Monday. The deal would generate RM1.7bil in total proceeds based on the rights price of 79 sen. The rights issue is to mainly fund ongoing property ventures and repay debt.
CIMB Research notes that while MRCB’s current total contracts in tender stand at RM3.5bil, the visibility and details of the targeted contracts remain scant.
It says there is a small possibility that the group could deliver a stronger-than-expected success rate and exceed its RM800mil total wins forecast for financial year ending Dec 31, 2017. Year to date, MRCB has secured RM614mil worth of jobs.
“Upside could emerge from new tender opportunities from the RM55bil East Coast Rail Link or other private-finance initiative contracts in the Klang Valley,” CIMB Research said.
The brokerage expects MRCB’s 2017 earnings to be supported by its healthy construction order book and RM1.6bil unbilled property sales as at end-June 2017. For contract wins, CIMB maintains its RM800mil per annum contract win assumption.
However, CIMB Research reckons there is a downside risk to its earnings per share forecast for 2017 if the construction earnings margin in the second half of 2017 fails to meet its forecast of 7% and if LRT3 PDP earnings are delayed to 2018.
MRCB’s total construction wins ytd have been decent with a focus on highways and rail. Its current outstanding construction order book is estimated at RM6.9bil, which represents a healthy 4.5 times revenue cover (based on annualised first-half 2017 construction revenue).