Thursday 28 Mar 2024
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Malaysian Resources Corp Bhd
(July 9, RM1.14)
Maintain buy with a target price of RM2.16:
Malaysian Resources Corp Bhd’s wholly-owned subsidiary MRCB Engineering Sdn Bhd (MESB) entered into a joint venture and shareholders’ agreement (JVSA) yesterday with Hicom Builders Sdn Bhd (HBSB) and Dekad Kaliber Sdn Bhd (DKSB) for the purpose of setting up a joint-venture company to undertake the construction of the Integrated Immigration, Customs, Quarantine and Security (ICQS) Complex in Bukit Kayu Hitam, Kedah. Another JV company between Zelan Construction Sdn Bhd and Kiara Teratai Sdn Bhd, Zelan-Kiara Teratai JV (ZKTJV), is the main contractor for the project. ZKTJV has in turn awarded the contract for construction of the ICQS Complex to DKSB for RM310 million.

DKSB is a joint-venture company between MESB and HBSB on a 51:49 basis, with MESB holding the majority. The rationale for the joint venture is to enable MESB and HBSB to pool their resources and expertise to undertake the aforesaid project.

We are not surprised with the job win as it is line with management’s guidance. However, we reckon the contribution will not be significant. Given that the project will be jointly developed, we expect the earnings will come in between RM6.3 million and RM9.5 million over the next two to three years.

This is based on a conservative margin assumption of 4% to 6% as we view the subcontract job will fetch a lower margin. Overall, this job will strengthen its outstanding order book to an estimated RM1.72 billion. As the project falls within our replenishment target, we make no changes to our earnings forecasts at this juncture.

We keep our “buy” stance with an unchanged target price of RM2.16 per share. In view of the recent share price weakness, the stock is attractive to accumulate for the following reasons: (i) it is trading near its net asset value; and (ii) the potential growth of both its construction and property development businesses this year and beyond. — MIDF Research, July 9

 

This article first appeared in The Edge Financial Daily, on July 10, 2015.

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