KUALA LUMPUR (July 30): HLIB Research has maintained its "hold" call on Malaysian Resources Corp Bhd (MRCB) with an unchanged target price of 50 sen, saying it prefers cheaper proxies given the group’s trading valuations, despite a possible revival of the Kuala Lumpur-Singapore high speed rail (HSR).

The research firm said MRCB trades at a fair 0.51 times its price-to-book value (P/B) of its forecast earnings for the financial year ended Dec 31, 2020 (FY20), which reflects its mere FY20-21f return on equity of 0.9%-1.4%.

HLIB said the potential rally from speculative news on the HSR may not be sustainable, given its demanding price earnings ratio (P/E) multiples of 55.6 times for FY20, 36.1 times for FY21, and 26 times for FY22.

The research firm also noted that MRCB’s order book stands at circa RM15.1 billion (ex-equity accounted LRT3), translating to a sector high cover of around 22 times, comprising mostly long-term jobs.

“Management guided that operations are normalising with productivity levels at 70% (versus pre-Movement Control Order). Nonetheless, a key emerging risk is labour constraints due to the freeze on foreign worker recruitment.

“This, coupled with SOP [standard operating procedures] compliance, should impede a full normalisation in productivity levels. Tenderbook stands at an unchanged RM2.5 billion (80% building; 20% infra). Included in this are rather smallish ECRL jobs where we reckon award conversion is marginally beneficial given its sizeable orderbook,” it said in a note today.

Besides, the completion rate of LRT3 stands at 30%, with 40% targeted by end-FY20. HLIB said the ongoing re-measurement process coupled with slow work progress has hampered its earnings recognition so far.

“Realistically, management is guiding for stronger bottomline contribution materialising towards the backend of FY20. At full pace, LRT3 contribution is RM15-20 million p.a. [per annum] by our estimation,” it said.

According to HLIB, the group’s property segment will drive earnings this year, buoyed by handover of projects and progressive billings.

It added that MRCB's management sounded optimistic for its waste-to-energy (WTE) prospects as it aimed for a concession role.

“We note that this is against a backdrop of supportive government policies where GoM [the government of Malaysia] plans to build six WTE plants by 2021 as the tenders start Sept-2020,” said HLIB.

At the time of writing, shares in MRCB were half a sen or 0.9% higher at 56 sen, valuing the group at RM2.47 billion. It saw 2.56 million shares transacted.