Malaysian Resources Corporation Bhd (MRCB) has bright prospects ahead, with its bid for Kuala Lumpur-Singapore high-speed rail (HSR) project and other projects such as LRT3 stations and flood mitigation project, according to RHB Investment Bank (RHB IB).
In its Company Update today (Jan 26), the research house said that MRCB had reportedly teamed up with Berjaya Land Bhd’s (BLand) 70%-owned subsidiary Berjaya Rail Sdn Bhd (BRail), IJM Corporation Bhd’s (IJM) unit IJM Construction Sdn Bhd and Keretapi Tanah Melayu Bhd (KTMB) to submit a concept proposal for the project.
“We believe such an arrangement for a consortium is apt for the concept proposal under the project’s request for information (RFI) exercise,” it said.
Besides that, RHB IB said MRCB has rail credentials Mass Rapid Transit (MRT) 2 and Light Rail Transit (LRT) 3 in addition to its role in redeveloping KL Sentral (subject to negotiations with the government), which seems timely with the HSR’s potential rollout.
“If the HSR passes through KL Sentral, the redevelopment of KL Sentral could take place concurrently with the HSR. IJM could focus
more on rail electrification works via its 44.8% acquisition of Pestech International Bhd, which is expected to be completed by February 2024,” it said.
It added, YTL Corporation Bhd has also submitted a concept proposal for the HSR project, according to the same news report.
“Therefore, a similar structure to that seen in 2018, whereby HSR packages were divided into the northern and southern sections, cannot be ruled out,” it said.
Aside from HSR catalyst, RHB IB said MRCB also has other prospects such as flood mitigation project in Selangor, which is estimated to be around RM500 million to RM1 billion.
“MRCB’s pre-qualified status for the project could see further developments by the first half of 2024 (1H24), in our view, given the urgency to manage floods in the country.
“Other prospects may come from MRT3 – we think MRCB has a chance to secure the elevated section, while the reinstatement of five LRT3 stations may also benefit the group, which is the main contractor for the ongoing construction of the 20 initial stations,” it added.
The research house said it maintained its earnings estimates for MRCB and a BUY call.
“We ascribe a higher target P/E of 18x (from 11x) for MRC’s construction arm, reflecting the level that MRC was trading at during the mid-2017 construction upcycle.
“Taking into consideration the bright prospects mentioned above, we also lower our discount to revalued net asset value (RNAV) to 40% from 55%.
“As a result, we arrived at our new SOP-derived RM0.74 target price (TP), from RM0.52, 28% upside and 2% yield. The TP is inclusive of a 0% ESG premium/discount.
“While we project a 13% year-on-year (YoY) earnings drop in FY23, MRCB has an estimated 3-year earnings compound annual growth rate (CAGR) of 15% supported by its strong orderbook-to-revenue cover ratio of more than 10x and a land bank of 1,153 acres with a gross development value of RM33 billion.
The key downside risk of RHB IB’s call is sluggish project rollouts.
