This article first appeared in The Edge Financial Daily on November 14, 2018
Malaysian Resources Corp Bhd
(Nov 13, 74.5 sen)
Maintain buy with a higher target price (TP) of 90 sen: Malaysian Resources Corp Bhd (MRCB) has entered into a termination and settlement agreement for its Eastern Dispersal Link Expressway (EDL) concession with the government of Malaysia. The government will pay RM1.3285 billion to MRCB.
The total cost and net book value of EDL service concession assets are about RM1.3268 billion and RM1.1353 billion respectively. MRCB expects a net pro forma gain of RM24.05 million from the early settlement of the concession debt.
We view the concession termination agreement positively as it will reduce the group’s net gearing of 0.53 times at end-2017 to 0.28 times. After settling the EDL concession debt of RM1.0742 billion and other expenses, MRCB will receive RM226.58 million cash that can be deployed to finance its other projects, such as Kwasa Sentral and the Cyberjaya City Centre.
The one-off gain of RM24 million will also lift estimated earnings for financial year 2019 (FY19), assuming that the deal is completed in the first quarter of 2019. There are also interest cost savings in FY19 to FY20, with the early settlement of senior and junior sukuk totalling RM1.07 billion.
We have revised our core earnings per share forecasts up by 10% for FY19 and 14% for FY20 to reflect the interest cost savings from the repayment of the EDL debt and the new contract value agreed by the government of RM11.9 billion for the light rapid transit Line 3 project. We have raised our revised net asset value (RNAV) per share estimate to RM1.50 from RM1.46 to reflect lower net debt.
We have reiterated our “buy” call on MRCB, with our TP raised to 90 sen from 88 sen, based on the same 40% discount to RNAV. We expect the clearing of uncertainties about the EDL and LRT3 projects to potentially lead to a relief rally for MRCB’s share price. — Affin Hwang Capital, Nov 13