Malaysian Resources Corp Bhd’s (MRCB) 9M23 core earnings of RM20.8 million, down 60% year-on-year, missed RHB Investment Bank’s (RHB IB) expectations, at 44% of our and street’s full-year projections.
However, RHB IB said the negative deviation was a ‘slight hiccup’ on a higher-than-expected tax rate due to an FY22 tax under-provision, which was known in 3Q23.
“While we project a 13% YoY earnings drop for FY23, MRCB estimates a 3-year earnings CAGR of 15%, supported by its strong orderbook-to-revenue cover ratio of more than 10x and landbank of 1,153 acres with gross development value (GDV) of RM33 billion,” it said today.
Therefore, the research house keeps its BUY call with a new 52 sen SOP-TP from 55 sen, 18% upside.
“We cut FY23F to 25F earnings by 14.8%, 12%, and 6.8% respectively as we raise our effective tax rate assumptions, but still expect the 4Q23 tax rate to normalise, and dial down on the property sales forecasts.
“Consequently, we arrive at a new SOP-based 52 sen TP, baking in a 0% ESG premium/discount based on a 3.0 ESG score,” it said.
RHB IB said a near-term rerating catalyst would be securing the Kuala Lumpur Flood Mitigation Plan projects in Selangor – may be worth RM500 million and RM1 billion based on our estimates.
“The stock is trading at a 0.4x FY24F P/BV, more than -1.5SD below the KLCON Index’s 5-year mean P/BV – undemanding in our view in light of the aforementioned points; hence, our BUY call,” it said.
It added that the key downside risks include a slowdown in the property market and sluggish project rollouts.
On the group’s quarterly results, RHB IB noted that the group’s construction segment saw a 43% YoY jump in 9M23 EBIT on higher progress billings for the Light Rail Transit 3 (LRT3) project, with 85% financial recognition as at end 3Q23.
“MRCB’s property arm saw a 71% YoY EBIT contraction for this period due to the completion of Sentral Suites and TRIA 9 Seputeh in April and May.
“Completed unsold units reached RM555 million as at end 3Q23 but were slightly lower than end-2Q23’s RM587 million – indicating that sales are progressing,” it said.
At the end-9M23, the group has outstanding construction orderbook at RM16 billion – including the RM11billion Bukit Jalil Sentral (BJS) project – and provides more than 5 years of earnings visibility.
