Malaysian Resources Corporation Bhd
(May 22, RM1.33)
Maintain “add” with a target price (TP) of RM1.70 from RM1.81: Malaysian Resources Corporation Bhd’s (MRCB) annualised first quarter of financial year 2015 (1QFY15) core net profit made up 67% of our full-year forecast and 58% of consensus’.

The performance was broadly in line as the coming quarters should be better due to stronger progress billings for property and construction.

The decline in construction earnings before interest and taxes (Ebit) was offset by property development’s net gains from disposing of Platinum Sentral.

We expect an overall group Ebit margin of 10.4%, backed by a sustainable property development Ebit margin of 24%, as achieved in 1QFY15. The absence of dividends was expected.

Guidance during the results briefing was that the group will continue to revive its construction division this year.

Potential growth in the group’s RM1.1 billion external outstanding order book is backed by RM2 billion worth of domestic jobs in tender, most of which are infra-related.

Investors should keep an eye on the July announcement for the PDP (Project Delivery Partner) role for the RM9 billion LRT Line 3, as MRCB is among the seven shortlisted for the role.

At 6% PDP fees and assuming the entire RM9 billion would be under the PDP scheme, this translates into a total net profit of up to RM540 million over five years or RM108 million per year, assuming there are no project delays.

The stock trades at a steep 38% discount to its revalued net asset value (RNAV) and offers value as the group continues to scout for more land bank in the Klang Valley.

In the medium term, key rerating catalysts for the stock are likely to be construction-driven, backed by a sustained momentum of positive sector news flow from the announcement of the 11th Malaysia Plan. — CIMB Investment Bank Bhd, May 22

This article first appeared in The Edge Financial Daily, on May 25, 2015.