This article first appeared in The Edge Financial Daily on January 30, 2019
Malaysian Resources Corp Bhd
(Jan 29, 69.5 sen)
We maintain market perform with a target price (TP) of 75 sen: Yesterday, Malaysian Resources Corp Bhd (MRCB) announced that it had bagged a contract award amounting to RM323 million from Turnpike Synergy Sdn Bhd for the construction works of the SUKE highway under work package CA2. The construction works for this portion are expected to be completed in April 2020. This marks MRCB’s first construction win for the year.
However, we are “neutral” on the contract win of RM323 million as it is within our financial year 2019 earnings(FY19) order book replenishment of RM1.5 billion. Assuming a conservative pre-tax margin of 5%, this job is expected to contribute about RM9.7 million to its bottom line in FY19.
Going forward, management is targeting sales of RM1 billion for FY19 with planned launches of RM900 million for the year of which RM500 million is from its Australian project in Docklands. Its existing outstanding order book stands at a massive value of about RM21.3 billion with a visibility of more than five years. However, we are much more prudent with our sales target as we are only expecting sales of RM500 million compared with management’s target of RM1 billion as we remain conservative given the current challenging climate in the property sector.
No changes to our FY18-FY19 estimate earnings.
We maintain “market perform”, with an unchanged sum-of-parts-driven TP of 75 sen. Our TP implies a price-to-book ratio of 0.75 times, which is close to its trough levels. We opine that the long-term outlook for the company is relatively stable compared with other contractors or developers due to their massive outstanding order book and transit-oriented developments. However, we note that management would need to step up in increasing operational efficiency by further lowering operating costs to remain competitive and improve overall profitability as margin erosions have been evident. — Kenanga Research, Jan 29