MALAYSIAN RESOURCES CORP BHD
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.”