KUALA LUMPUR: CIMB Equities Research is maintaining its Add for Malaysian Resources Corporation Bhd (MRCB) as its medium-term catalysts remain deal-driven, on top of likely domestic contract wins. 

The research house said on Thursday potential new developments on the MoU to explore opportunities for a
transport oriented development (TOD) in Bandar Malaysia’s phase 1 could be positive for the stock. 

“Add maintained. Downside risks are weaker property sales and margins,” it said.

CIMB Research retained its FY16-18 EPS forecasts. The target price was nudged up slightly to RM1.52 to RM1.53 as it rolled over to end-2017 and update for balance sheet items, still pegged to a 20% RNAV discount.
“Although annualised 9M16 net profit exceeded our and consensus forecast by 4%-8%, we consider the overall results to be broadly in line due to the absence of earnings boost from property asset sales in 4Q16. 

“Property division was the best performer in 9M16, with 29% growth in revenue, outpacing other divisions, including construction. The bright spot for construction was the sequential EBIT margin improvement since 1Q16 to 4.8% in 3Q16, although 4Q16 earnings could be capped by the timing of new jobs,” said the research house.

MRCB’s total construction wins year-to-date amounted to RM1.2bil, comprising mainly the MRT 2 contract (RM648mil), Sg. Pahang phase 3 (RM189mil) and Kwasa Land (RM112mil). This brings the total external unbilled order book to RM5.2bil. 

“A positive during the results briefing was that management is gunning for RM8.3bil worth of jobs to tender which, in
our view, may include other domestic civil infrastructure jobs in addition to potential new river rehabilitation contracts,” it said.

Despite a generally subdued property market in the medium term, management is targeting an optimistic RM1.5bil total property sales for 2017, to be driven largely by Sentral Suites (RM1.3bn GDV) in KL Sentral, which is targeted for launch in Dec.

“As it stands, 9M16 total property sales of RM1.1bil have already exceed management’s full year target of RM1bil. Unbilled sales stood at RM1.4bn as at end-September 2016.

“With the completion of the 20% private placement (RM408mil proceeds), management guided that it is looking at completing the disposal of Menara Shell by year-end which would translate into RM89mil in net gain for FY17. 

“The finalisation of the Kwasa Damansara project delivery partner (PDP) agreement is also set for next month. Talks on the potential disposal of the Eastern Dispersal Link (EDL) remain ongoing. This, plus the potential disposal of two other property assets, is key to its de-gearing strategy,” it said.