MALAYSIAN RE­SOURCES CORP BHD

The Star Malaysia - StarBiz - - Analyst Reports - By CGSCIMB Add (pre­vi­ously re­duce) Tar­get price: 90 sen

FOL­LOW­ING the recent bud­get an­nounce­ment, CGSCIMB be­lieves that Malaysian Re­sources Corp Bhd (MRCB) is a ben­e­fi­ciary of the tolled high­way ini­tia­tives.

“One of the key in­fra take­aways re­lat­ing to tolled high­way con­ces­sions is the set­ting aside of RM1.3bil as full com­pen­sa­tion to MRCB for the abol­ish­ment of toll col­lec­tion on the 100%owned East­ern Dis­per­sal Link (EDL, 8.1km, 34-year con­ces­sion) and the ter­mi­na­tion of EDL’s con­ces­sion agree­ment (CA).

The re­search house said this news is pos­i­tive and is long over­due, par­tic­u­larly clar­ity on the full set­tle­ment sum, which has never been of­fi­cially re­vealed.

“The new gov­ern­ment’s ac­knowl­edge­ment of the RM1.3bil com­pen­sa­tion to MRCB, in our view, should re­vive the long-drawn-out ne­go­ti­a­tions on EDL’s mu­tual ter­mi­na­tion agree­ment (MTA), which com­menced 10 months ago in Jan­uary.

“With this new mile­stone, we be­lieve there is a fair chance that a fi­nal res­o­lu­tion / agree­ment on the EDL could be ex­pe­dited and reached by end-2018.”

As per MRCB’s 2017 an­nual re­port, CGSCIMB said the car­ry­ing amount of EDL’s ser­vice con­ces­sion as­set was RM1.1bil.

“It was stated that in the event of a com­pen­sa­tion aris­ing from the MTA, MRCB ex­pects, at the min­i­mum, to fully re­cover the RM1.1bil car­ry­ing amount as per its le­gal rights un­der the CA, which was signed on June 26, 2007.

“EDL’s 34-year toll con­ces­sion ended on Dec 31, 2017. Since then, EDL has gen­er­ated zero rev­enue for MRCB.”

The re­search house is mak­ing no changes to MRCB’s 2018 to 2020 earn­ings per share fore­cast, pend­ing the ac­tual an­nounce­ment by the gov­ern­ment and MRCB re­gard­ing the res­o­lu­tion of the EDL MTA and more clar­ity on the time­line and the pay­ment scheme of the set­tle­ment sum.

“Up­grade from ‘re­duce’ to ‘add’ with a higher tar­get price of 90 sen, pegged to a lower 20% dis­count to re­vised net as­set value (30% pre­vi­ously). Our call is more trad­ing-ori­ented ahead of of­fi­cial news­flow on the EDL, which will serve as the stock’s key cat­a­lysts. A key risk to our call is a de­lay in the EDL set­tle­ment.”

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